Rumors concerning the possible departure of György Matolcsy

In the last week quite a few articles appeared in the Hungarian press in which it was reported that György Matolcsy might be in trouble. The question is how much trouble. Some time ago (it may have been in a comment) I suggested that with all the financial troubles Hungary has run into lately perhaps the smartest thing would be to fire Matolcsy. With a new man who has the trust of the financial community it might be easier to start afresh. For example, to begin negotiations for another IMF loan that according to most analysts Hungary most likely will need. Of course, it is possible that these brilliant economic moves actually come from the chief and that Matolcsy is only executing orders from above. But even in that case, by sacking Matolcsy Orbán could save his own hide.

The first hint of trouble in the Ministry of National Economy (Nemzetgazdasági Minisztérium) stemmed from a serious difference of opinion between Matolcsy's ministry and Deputy Prime Minister Tibor Navracsics's Ministry of Administration and Justice (Közigazgatási és Igazságügyi Minisztérium) concerning forty-one high positions. In Navracsics's opinion Matolcsy was not entitled to make these appointments. The right belongs to a newly created center under Navracsics's ministry that decides on the hiring of civil servants. The result is that these positions remain unfilled.

A few days later there was another problem between Matolcsy and, this time, the Foreign Ministry (Külügyminisztérium). Matolcsy decided to sack all the members of the Hungarian secretariat that has the important job of keeping in touch with the Economic and Financial Affairs Council (Ecofin) in Brussels. The reason: the organization must reflect more closely the new governmental structure. The problem is that members of the secretariat are employees of the Foreign Ministry. My understanding is that János Martonyi didn't appreciate Matolcsy's unilateral action.

There are rumblings within the walls of the Ministry of National Economy as well. One cause of strife is that apparently the staff of the former Finance Ministry finds its new position in the mammoth ministry of György Matolcsy less than satisfactory. Newspapermen became suspicious when they heard that Ferenc Bathó, assistant undersecretary and the person most familiar with the details of the budget, suddenly went on a holiday. A few weeks before the budget must be presented to parliament. Apparently this leave wasn't voluntary. According to information received by Index, Matolcsy told György Naszvadi, undersecretary in charge of the budget, that "Bathó's days are numbered," although by all reports Bathó has been the real brains behind the budget ever since 1994. Surely, Matolcsy shouldn't get rid of important and knowledgeable civil servants. He has enough trouble without firing loyal employees.

Népszabadság learned from several independent sources that there is "a crack" in the relationship between the budgetary unit led by György Naszvadi and Matolcsy and that it is not Naszvadi's position that is in jeopardy but Matolcsy's. Matolcsy's activities to date have been controversial. According to the latest opinion poll even Fidesz supporters have their doubts about the wisdom of fighting with the IMF and the EU. Economists, even those who sympathized with the party, are skeptical about the course Matolcsy is taking. Perhaps the most important of these was Tamás Mellár, who criticized some of the economic decisions of the new government. Mellár is on the staff of Századvég's economic think tank, a decidedly Fidesz-oriented institution.

In addition, the everyday workings of the ministry leave something to be desired. Urgent plans don't get off the ground. And, of course, there is the budget on which a lot depends. Perhaps the whole future of the Orbán government. If the budget doesn't meet the approval of the market Orbán might be in serious trouble. Getting rid of the staff responsible for putting the budget together seems suicidal. But at the same time sacking Matolcsy would be an admission of the failure of the Orbán government's economic policy.

If Matolcsy is replaced, Orbán must make sure that his successor is a man who is familiar with the business world and enjoys the trust of financial circles. According to rumors that man might be Zsolt Hernádi, currently CEO of MOL, the Hungarian oil refining company.  Hernádi between 1989 and 1994 occupied various posts at different commercial banks. He was CEO of the Central Bank of Hungarian Savings Cooperatives between 1994 and 2001 and a member of its Board of Directors between 1994 and 2002. Between 1995 and 2001 Hernádi was a board member of the Hungarian Banking Association. According to the staff writer of Népszabadság responsible for economic matters, Hernádi might be better as head of the other "economic ministry," the Ministry of National Development. However, lately there have been rumors that István Kocsis, currently CEO of BKV, the Budapest Transit Authority, will be moving over to MOL. He denies it, but who knows? Maybe there is something in all these whisperings.

Comments

[NWO]

Matolcsy's strength has also seemed to be that he is the perfect "yes man" for Orban. He has always been the front guy and it seems always told Viktor what he wanted to hear (much of which was nonsense). His problem now is that among the sophisticates in Budapest, Matolcsy is considered both lazy and a dolt. Few if any people take him seriously, including FIDESZ types. Even within the cocoon that Orban lives, this sentiment has I am reached him. Making matters worse for Matolcsy, I am told that Fellegi does not like or respect him. As Fellegi is a real power in the Government (given his major bag man role), this is someone Matolcsy should not have crossed. Orban given the choice between yes man and bag man, it seems, will choose the HUF. As we say in America, "money talks, bs walks".

[NWO]

One more thing.

If Matolcsy does go, it would be somewhat ironic given that last week was a banner week for Hungarian FDI with new investments announced by Opel, Audi and Hankook that by my counting will bring about €1.5bn of FDI into the country and create a couple thousand jobs. Obviously, the work for these deals was started by the Bajnai Government, but this strategy of a weaker HUF and increased big ticket FDI is very much from Matolcy's playbook.

[Pásztor Szilárd]

Whatever situation Matolcsy may be in, actually most analysts agree (despite what is written in this post) that refusing to take another IMF loan was a wise move.
I don't know where the author is getting this pro-IMF "information" from, but most economists agree that Hungary can finance itself from the markets and needs no further IMF contracts.

[Alias3T]

Oh, so if it was a wise move, why, before the talks breakdown, was the government planning not only on drawing down more money from the existing loan, but also on agreeing a renewed stand-by loan when the current one expires next year?

"A meglevő IMF-megállapodást év végéig meghosszabbítanák és 2011-re új szerződést kötnének - jelentette ki Szapáry György, a Nemzetközi Valutaalappal és az unióval folyó tárgyalódelegáció vezetője a köztelevízó Ma Reggel című műsorában."

(http://www.origo.hu/uzletinegyed/hirek/20100617-jovore-uj-imfszerzodest-kotne-a-kormany.html)

Look - the government wanted another loan. Orban and Rosenberg had a big argument, and at least one of them was too proud to back down. Guess which one? And so he invented the whole "economic struggle for freedom" as a means of explaining the whole sorry fiasco.

And now you're telling us it was a wise move, just part of the grand strategy. Next you'll tell me that losing the 2006 elections was part of his grand plan to destroy the Socialists for evaaaaaah!

[Gábor]

Alias3T: you are right, this re-invention of history already happened in late 2006. :D

Szilárd, again you have problem with basic mathematical concepts. It is hard to prove most (!) analyst say the move was wise. Rather some analyst (for example György Barcza) suggest it was wise, most analyst agree Hungary can finance itself (given a convincing budget after October 3rd) but they still argue the IMF's safety net would be useful and a few analyst (most notably Peter Attard Montaldo from Nomura) tell the opposite, especially as they don't think the budget will be convincing. Unfortunately the problem is not who are right regarding the budget, but how long it will last until markets wake up and realize amidst the eurozone periphery's resurfaced debt crisis how few differences can be found in Ireland's and Hungary's situation, at least from their certainly not quite sophisticated point of view. (Are these countries capable to service their debt in the light of their realistic macroeconomic perspectives?) As soon as it will happen probably no budget will be convincing enough.

[Eva S. Balogh]

Gábor: "most analyst agree Hungary can finance itself (given a convincing budget after October 3rd) but they still argue the IMF's safety net would be useful"

I just wanted to tell Szilárd but then I had a few household chores to attend to that he is mixing up two things: a stand-by or precautionary loan and actually drawing on that money. Almost all analysts say that at the moment Hungary doesn't need the extra cash (after all Bajnai government didn't deplete the money that was available), but almost everybody thinks that a precautionary loan might strengthen trust in Hungary's financial situation. Moreover, the country might need the money next year when it has to start paying back the IMF-EU loans.

[Sackhoes Contributor]

Szilard: having an approved line of credit from your bank is NOT the same thing as actually using the credit line and taking out a loan. Of course it is better if you do not take on additional debt. But right now the government is selling it's short term bonds (another form of taking on debt) at a higher price that it would if it had the safety cushion of the IMF credit line. That higher price comes out of the expenses of the country and is paid for by the taxpayers.

So far the only advantage I see for Orban is the political hay he is making of his independent stand and the popular support he hopes to pick up at the municipal elections. I guess there are enough Hungarian voters who prefer to spend extra money for the privlege of sticking it to those Westerners...

[Alias3T]

@SC: "So far the only advantage I see for Orban is the political hay he is making of his independent stand and the popular support he hopes to pick up at the municipal elections."

The key advantage he gains is that the IMF has no say over economic or fiscal policy if there's no IMF agreement. It's a trade-off: if you want complete policy freedom, then you have to do without the IMF safety net, and so financing is more expensive. If you want cheaper financing, then you need an IMF safety net, which means giving the IMF a say in your economic policy.

Arguably, this is a false choice. The IMF probably wouldn't be keen on lots of spending on spas, barely used MAV branch lines and maybe even bank nationalisations. But if, in order to attempt some of these schemes, they do without the IMF, they'll find themselves without the money to do so very quickly indeed.

Honestly, I can't see what there is that the IMF would forbid that the government has a realistic chance of implementing.

[Pásztor Szilárd]

You people act like if you didn't know (well, most probably you don't - that's it) that for having a loan at disposal a country must pay an availability charge. Plus, the IMF would of course specify conditions to make the loan available.
And precisely these are the conditions why the negotiations temporarily ended by IMF going home.
Aljaselvtárs: Szapáry may have said what you quoted, but what does it matter now? I think the government didn't WANT the IMF to go home; they hoped they could reach an agreement but as the IMF showed no will to give up on points that were unacceptable for the govt, things turned out differently. Still the right way.

[Pásztor Szilárd]

@Alias3T: "Honestly, I can't see what there is that the IMF would forbid that the government has a realistic chance of implementing."

I tell you what: they want austerity to be imposed on the population instead of taxing the banks. But you surely know that. That's what the government didn't accept.

[Eva S. Balogh]

Szilárd: "Aljaselvtárs:..." I warned you once. If you don't stop using that type of "debating style" you will be flying from here. I usually keep my word.

[Alias3T]

So we're elvtarsak? Akkor gyerunk forradalmat csinalni! Fol, fol, ti rabjai....

"they want austerity to be imposed on the population instead of taxing the banks"

Actually, I think they key sticking point was the 3 per cent deficit for 2011. They didn't much like the banking tax, but it wasn't make-or-break. Now Hungary's in the gloriously independent position of having conceded the 3 per cent deficit, because of market pressure, not the IMF, and not having IMF support either.

On the availability charge, the key question is whether the cost of having the stand-by available is higher than the interest premium you have to pay if you don't have IMF support. I presume you've costed this for a range of plausible budget deficits?

[Gábor]

Szilárd, if you would be more attentive to your discussion partners we could skip these unnecessary regressions to facts cleared earlier. Especially Mark pointed out many times it was not the IMF sticking to specific measures, but the EU. Just as it was the case in every other IMF program since the Lehman debacle. And - what an astonishment - the glorious economic war of independence was fought in order to conclude an agreement with the EU - the ones, who were and are demanding austerity. (Or how would you call the new set of rules, the fines in case of excessive deficit etc.?) Morever, this glorious war of independence delivered as the unheard victory of the new economic governnance of the EU, resulting in a preliminary evaluation of the budgets, based on the forecasts and estimates of the EU Commission, even for 2011 in 2010. This is economic independence?

As it was clear from the unusually harsh statements of the IMF, the reason to abandon the negotiations was the lack of not only credible plans but any sign of existing economic planning for 2010. The HUngarian government wanted its partners to accept their sole promise - something they tried to reverse even after a few days, remember the hints to a possible higher deficit in 2011 - as guarantee, without any specific details etc. The irony of this situation is that you, a self-conscious national of this country should have to demand loudly from your government the presentation of such details as it will affect your life and not the life of those guys in Washington.

[Pásztor Szilárd]

@Eva: the "aljaselvtárs" is an old mock-nick of his. We usually used it on former forums.

[Pásztor Szilárd]

@Gábor: incorrect. The IMF, when signing the loan contract, had no other requirements than the budget deficit maxed at 3.8% for 2010. In the forthcoming negotiations, they wanted austerity measures imposed and cancellation of the bank tax. Look it up in news sources if you don't remember.

[Eva S. Balogh]

I don't care where else "you use the "aljaselvtars." You won't use it here.

[Paul Haynes]

Szilárd - a question for you (no hidden agenda, just something I don't know, but would like to) - where does Orbán stand on the EU?

My impression over the years visiting Hungary, is that all parties were very much in favour of joining the EU (and the Euro), and presumably this includes Fidesz.

But what if the EU makes demands on Hungary (e.g. re loans, etc) that Orbán doesn't like (or daren't accept) - would Fidesz adopt an anti-EU stance, like other right-wing parties in Europe tend to? Would he even go so far as to threaten to pull out of the EU?

It's always struck me as odd that Fidesz makes great play of wanting Hungary to be independent, but at the same time supports belonging to the EU. The Right here in the UK are always banging on about Britain losing its independence because so many decisions are now made in Brussels.

And where does VO stand on the Euro? Again, membership of a single currency hardly matches Fidesz's declared desire for an independent Hungary.

[Pásztor Szilárd]

@Paul: this is a very easy question to answer. Orbán is absolutely pro-EU, and has always been (despite what the Socialists claimed with a deliberately cut "quote" of his words).
The problem is that many people overlook important details and think that any criticism by Fidesz towards the EU means that they are not definitely EU supporters. Sure, most members of the party and their voters (including me) have reservations but that only means it is not accepted uncritically. The rational mind knows that for Hungary, during these times, being inside the EU is definitely the best option.

Maybe you have overlooked that Orbán is a Vice President of the European People's Party, the party with the largest fraction in the EP. How could an EU skeptic be in such a position?

As for the Euro, he and his government is, again, supporting it, albeit not without reservations. They know that monetary politics becomes restricted the moment the Euro gets introduced as no possibilities remain for the national Central Bank to control the currency rates. That's why they try to utilize these possibilites while they are available.
Still, many of today's problems in Hungary wouldn't exist if Fidesz and VO hadn't lost power back in 2002: most probably we would be paying with Euro since 2007, exactly as Slovakia does today.

[Paul Haynes]

Thanks Szilárd, a useful perspective.

And at least you're in the EPP and not the ECR, unlike our own dear Tory party! This just goes to underline how difficult it is for us in the West to understand Fidesz (and, in a similar way the Hungarian 'Socialists'). The normal labels of 'right' and 'left' just aren't adequate.

To me, Fidesz appears right-wing, in fact sometimes extreme right-wing, but at the same time many of its policies would be regarded as old-fashioned extreme left in the UK. And I don't see much that's 'socialist' in the MSZP, in fact, the only openly MSZP supporters I know are people with small businesses!

Still, it's a long time since the Conservatives in the UK conserved anything, and, under Blair, 'socialism' became a dirty word in 'New' Labour.

Incidently, I have another question relating to all this (for anyone, not just Szilárd) - it has long puzzled me what exactly 'civic' means in Hungarian politics. Although the same word exists in English, it appears to have a different meaning (and much greater importance) in Hungary.

[Kata]

@Paul Binary oppositions always seem to simplify the complexities of reality. In many areas of social sciences scholars have revisited theories built on dichotomies as stable or reified entities. Maybe it'd be hight time that politics reinvented itself as well.

I'm also curious about what others will say about the meaning of "civic." For me the distinguising feature of the notion is pertaining to "people as members of society" as opposed to the political and state apparatus. Perhaps a very important notion in the history of socialist regimes where all (societal) initiatives used to be the prerogative of the State.

[Paul Haynes]

Kata - I wasn't thinking of the word entirely in a Fidesz (or even political) context. I see and hear it used all the time in Hungary, in all sorts of situations. Also the word 'civis' - although I've no idea if this is the same word or not (I never assume anything where Hungarian is concerned!).

Our Hungarian home is in Debrecen, so it could just be that I'm hearing and reading a lot of Fidesz propaganda without realising it (my Hungarian being very weak), but I get the feeling that civic/civis is used a lot outside of the immediate Fidesz/political context as well.

Although I may simply have misunderstood!

[Kata]

@Paul my first paragraph refers to the use of the "Left" and "Right" in politics.

As for the word "civic," I don't think that "civic" and "civis" are the same words although they definitely go back to the same root. "Civis" used in the context of Debrecen is closely connected with the history of the town.

[An]

@Paul: If you mean civic as "polgari" in Hungarian, that's definitely a Fidesz invention. I think it is a catchphrase to distinguish themselves from the "socialist" and the left, and also from traditional liberalism. The word airs a certain nostalgia for a "polgari" Hungary as it existed in the early 20th century...when the "polgarsag", or the middle class consisted of educated professionals (lawyers, engineers, etc), businessmen, and, more importantly, the so-called "gentry", the lower ranks of the noble class who lost its land but kept certain aristocratic privileges.

To catch the ambience of those times and a feel for that “polgarsag”, just watch an old Hungarian movie made in the 30s-40s.

And yes, Debrecen is traditionally a Fidesz stronghold; so I am not surprised if you hear the phrase thrown around there a lot.

[Paul Haynes]

Thanks for your replies.

An - you're right, 'civis' is a Debrecen thing. I think I've seen Debrecen described as the 'civis town' in tourist bumph. But that stuff is so badly translated I'm never sure what some of it means! (They once got Easter and Eastern muddled up!).

Kata - Polgari to me just meant a person from Polgár - the town on the way to Miskolc! I didn't realise it had a more general meaning than that.

But I understand what you mean. We were having a discussion on here about the differences between 'middle classes' in England and Hungary the other day, and I asked my wife what she meant by 'middle class'. Her definition was almost exactly the same as your 'polgarsag'.

So, it's another attempt by Fidesz to tug at the nostalgia strings - Greater Hungary, the old days when people knew their place, the crown of St Istvan...

Roll on 21st century democracy!

[Paul Haynes]

Sorry! Managed to swap your names somehow. My apologies.