Viktor Orbán and the eleven government-friendly economists: Someone is not telling the truth

In case anyone thought that Viktor Orbán and his right hand, György Matolcsy, minister of economy, consulted with eleven government-friendly economists because of the country's dire financial situation he would be wrong. The time of the meeting was fixed weeks earlier and it was to be a routine affair.

At the beginning of September the same eleven trusted economists and financial experts met with the prime minister flanked by Matolcsy and the ever-present Péter Szijjártó. At that time Orbán took a lot of notes while the eleven said whatever they felt was important to share with the prime minister. Details are not known. If any of them told Orbán and Matolcsy that the government's economic policy was untenable and that it would most likely end in failure, they certainly didn't listen. How forthright these people were is hard to say.

One can question the use of a meeting where only those people are invited whose criticism, if they had any, is gift wrapped. After all, most of these people are either Orbán appointees in the current administration or served in the first Orbán government.

Mihály Arnold is the vice-chairman of the Office of National Taxation and Customs (Nemzeti Adó- és Vámhivatal); Károly Szász, chairman of the Capital Market Authority (Pénzügyi Szervezetek Állami Felügyelete, PSZÁF); István Töröcskei, undersecretary in charge of the office responsible for issuing government bonds; György Szapáry, Hungarian ambassador to Washington; Lőrinc Soós, vice-chairman of the Hungarian Statistical Office; Zsigmond Járai, minister of finance between 1998 and 2000 when he was named by Viktor Orbán to head the Hungarian National Bank; and Henrik Auth, who was vice-chairman of the National Bank during Járai's tenure.

In addition there were four economists who did not serve in either of Viktor Orbán's two administrations: György Barcza, the leading analyst of the K&H Bank; Péter Ákos Bod, professor at Corvinus University; István Hamecz, chief economist of the National Bank; and László Csaba, professor at the Central European University. I guess I don't have to emphasize that these four economists are all close to the present government. There are a couple of economists who should have been invited, but lately they have been critical of the Orbán-Matolcsy economic policy. One of them, Tamás Mellár, was head of the Statistical Office between 1998 and 2000; the other, Attila Chikán, was economic minister between 1998 and 1999. Both men in writing and in interviews are about as critical of the government's policies as are the so-called liberal economists. And certainly no one was invited from the "liberal camp." Thus, it is clear that Orbán doesn't really want to hear anything that is not exactly music to his ears.

Orbán leaving the meeting with László Csaba

Now, the question is what Orbán actually heard at the meeting that took place on November 25. Well, that's hard to say. If you believe György Matolcsy, the invited economists said exactly what he and all the spokesmen of the government have been saying for days: "Military operations have been launched against Hungary." Specifically against government bonds and the forint. The fundamentals of the Hungarian economy are strong. As far as the advice the eleven economists gave, Matolcsy claimed that it was useful. One piece of advice was "to prepare a new plan for economic growth"; another, that "Hungary needs a financial safety net that can be provided only by the IMF and the European Union." It seems that the eleven managed to make him understand that Hungary will not be able to get the Flexible Credit Line he was hoping for.

So, that was what Matolcsy revealed about the discussions that lasted over three hours. Two of the participants remembered differently. According to them, Matolcsy outlined his own understanding of the situation at the very beginning but was then quiet throughout. Except that sometimes he made faces when he didn't agree with something he just heard. It seems that he repeated his own explanation that included the "speculative attack" story but apparently the economists present "explained to him that this viewpoint is entirely wrong. The financial world doesn't work that way." It's a pretty sad situation when someone must explain to the economic minister how the financial world actually works. If he didn't know it before, it is not at all surprising that Hungary ended up in this mess.

As for the prime minister, from the information received from some of the participants, he also seems to be totally ignorant of the workings of the financial institutions. Apparently "the prime minister asked for assistance on the most basic economic questions." He showed great interest in the subject, "he wanted to understand various details, for example, he wanted to find out about credit ratings, interest rates as set by the central banks, about speculation and about how banks work." Again, total ignorance of finance and banking.

The participants got the impression that Matolcsy and Orbán really believe in the existence of malicious financial circles and hidden speculators who attacked Hungary. Whether the economists present managed to convince them otherwise, I have no idea. One has the distinct feeling that Orbán in person can exert a magical influence on the people in his presence. He manages to change people's minds within a relatively short time. For example, the student leaders were seething about Rózsa Hoffmann's new law and were showing the bravery of lions until they got in front of the great man. After an hour they came out of his office like little lambs who now perfectly understood that the law wasn't that bad, after all.

It is very possible that Orbán showed great interest in the knowledge of these financial men and economists but deep down he wasn't convinced at all. One thing is sure. According to one of the informants: "They [Orbán and Matolcsy] are not in panic, although one got the impression that they are just a bit scared." According to a second informant the economists pointed out "some of the more unfortunate steps taken by the government, for example, the extra levies and paying off forex mortgages way under current rates." Some of them even brought up the possibility of Matolcsy's retiring from his post. There was no reaction to that audacious suggestion. The next few days may reveal how much the economists said to Orbán and Matolcsy and how much the two absorbed.

Comments

[David]

"The participants got the impression that Matolcsy and Orbán really believe in the existence of malicious financial circles and hidden speculators who attacked Hungary."

They probably believe that the Black Death was caused by Jews poisoning the wells too....

[Sackhoes Contributor]

Also among the economic experts who were not invited was George Kopits, who was forced out of chairman's office of the independent Fiscal Committee. Too bad. Possibly more than anyone he has more experience with the IMF.

[Odin's lost eye]

Ah so thirteen (note the mystic number) of them met is solemn conclave to address the problem of the malicious financial circles and hidden speculators who attacked Hungary. I do hope they sat inside a Pentagram.

Does the Viktator and his right hand man really believe that in a dingy room somewhere, lit by a menorah, there are men wearing tallits with tzitziot and yarmulkes on their heads sitting round a table plotting the economic destruction of Hungary.

If they believe that, they have not only fallen out of their trees but sit at night inside a fairy ring by the light of the full moon. They probably put a saucer of cream outside the back door of the Sandor Palace for the 'little people'. They have either all gone balmy or should leave the Palinka alone.

The simple fact is that at the Hungarian bond sale the investors did not like what they saw and did not buy the bonds on offer!

[kincs]

Perhaps Orbán is now going through the same process in relation to Matolcsy that many Hungarians are going through in relation to him: the realisation that one has made a catastrophically bad choice.

[Ron]

Please find below the link to the Contrarian Hungarian about the same topic as described above.

http://thecontrarianhungarian.wordpress.com/2011/11/27/after-downgrade-by-moodys-hungarian-government-gets-reality-check-from-panel-of-economic-advisors/#more-1648

The main difference between the two blogs is that the Contrarian Hungarian actually state that there was some kind of understanding among the economists on three points.

1. New budget with 0% growth, and cuts rather than new taxes.
2.Government must have a stand-by agreement with IMF with strings attached and more than EUR 4-5 billion.
3.To end past economic policies and reappraise the situation, especially re. "original sin" the forex loan repayment.

[Eva S. Balogh]

There is nothing to indicate in what I read that there was any promise to end economic policies of the past eighteen months.

[Ron]

Eva: There is nothing to indicate in what read that there is any promise to end economic policies of the past eighteen months.

No unfortunately not. But it is hopeful that at least among economists there is some understanding what needs to happen.

But as these economist are only advisers, VO and GM are not required to follow the advice given.

[David]

The government's policies of the last 18 months have basically been a gamble; put in place some short term measures in the hope that they will keep the country going until the wider European and world economies recover. Unfortunately the economic outlook for the EU is becoming increasingly perilous not improving.

I suppose it is a bit like loosing your job and instead of reducing our outgoings, keeping up the same spending habits financed by selling some of your assets or your savings in the hope that another job will come along soon. When a new job doesn't come your way you might then realise that your actions have been unwise.

[Törpefejű]

Yes, the actions of the Hungarian government may seem like rank delusion or desperate gambling for sensible observers. But I'm actually beginning to wonder whether they aren't fully aware of what they're doing, paradoxically enough. With their totalitarian mindset, "the worse the better" is a definite operating principle. Or else the real plan here is to make the Hungarian populace into an impoverished, brain-drained, fear-ridden peasantry, not much removed from the conditions of Gyula Illes's childhood, over which the elite could rule like Asiatic despots - no, not even Putin, I'm thinking the late Turkmenbashi and the rest. Not merely Turanianism, but a revision even of Arpad's move of his people geographically westward...

[Some1]

What buffles me is that Matolcsy, Orban and their clowns see some International financial conspiracy, while they do not realize what an unattractive market they have created wit their short sighted rip-off scams.
DId they forget about the turnover telecom taxes they introduced? (The EU order them in September to stop the practice, but I am not sure if Hungary needs to repay the money to the affected.) http://tinyurl.com/cxfovn7
How about the special and "brutal bank tax" as Bloomberg called it?
http://tinyurl.com/6rvbzkv
Two words "Crisis Taxes". It supposed to last for three years... or not.
Forced nationalization of Private Pension Savings
Foreign mortgage repayment program. Next to may other things, according to Moody it is "credit-negative for covered bonds." Hungary maybe have to repay the difference to the banks if the EU will go against this scheme.
http://tinyurl.com/78bcra5
As the USA State report nicely sums up: corruption, excessive red tape, uncertainty with taxes, lack of transparency and predictability, and discrimination against foreign companies.
http://tinyurl.com/6pjrx3w

So, based on the above, I must say that if anyone is in conspiracy against the Hungarian Forint or working against making Hungary attractive to investors, those are Orban and Matolcsy.

[Joseph Simon]

Orbán's economic policies deserve some praise. The banks pursued predatory and mercenary policies, so he reigned them in. Spain has just nationalized a major bank and Chancellor Merkel is considering to put a tax on the banks. So Hungary is not out of tune with the general trends in the EU. A small country is trying to keep its head above the water in a financial tsunami that originated in the US.

[Paul]

For a minute there I thought JS was actually going to post without mentioning the US! But it sneaked it in right at the death.

But saying it originated in the US is a bit like saying that we were all throwing petrol around for years, but it was the US that just happened to drop the lighted match.

[Some1]

Oh Joseph Simon, you lack as much smart on economics as Matolcsy does. You try to compare the economical situation of Germany and Hungary? You try to compare Germany existing banking policies to those of the Hungarian policies? Did you look into the attractiveness in investing in Germany? Simon, you must go back to read a 'bit more and not post in haphazard as Matolcsy and Orban do. Apparently it is bad to the health of the Hungarian economy. Look at the financial data.

[Some1]

By the way the bank tax you are referring to is floating around way before Matolcsy came up with his version. (Maybe he was just as misinformed as you are, and thought this as a great idea.) That money will go into some sort of trust fund. THe money would not go directly to the government to balance books, and pay out 2 and half month wort of bonuses to politicians or to finance contracts given out out to companies of political buddies. This idea is as far of the Hungarian thinking as far it could be. Still, at the end it will be passed on to the customers. Go back reading Simon.

[Mutt Damon]

@Jozsi What Orban does with the lending industry is something like refusing to put oil into you car. Loans are the lubricant for the economy. Speaking about your favorite country - why do you thing the damned yankees are bailing out the banks instead of suffocating them with extra taxes or letting them fail? What make you think that your countryboy is so much smarter?

[Paul]

Off topic, but funny:

There's a very silly blog post linked to on Budapost which tries to make a case out for Hungary jinxing everything it joins.

In the comments section (which is much more interesting than the post itself), the topic quickly switched to blaming the Hungarians.

At which point, enter the Dutch:

Felix Drost | November 28 10:26am | Permalink

As a Dutch citizen I accept no substitute for Belgians when it comes to assigning blame.

[Paul]

Some 1 - it might even have been us who invented it (like the Hungarians, we invented eveything!). We had a bank tax several years ago, when they made staggering profits at a rather inappropriate time. Except it was called a 'windfall tax' in the UK.

I also seem to remember us taxing pension funds...

[Paul]

Re the photo - how tall is Csaba?

I know Orbán's short, but THAT short?

[Joseph Simon]

Just watch CNN news today, about the secret bailout of US banks, with trillions. The US culture of making money from money continues, that plunged the world into a financial meltdown. Yeah, it is kind of hard not to mention the US in this context. And speaking of economists, where were those Nobel prize winners and elite business schools to warn us of the impending catastrophe?

[Ron]

Joseph Simon:Just watch CNN news today, about the secret bailout of US banks, with trillions.

Please provide with link.

[Mutt Damon]

@Jozsi I don't think he FIDESZ propaganda ministry will pay you for the above troll post. C'mon man! You gotta be joking.

[Some1]

Joseph Simon: "And speaking of economists, where were those Nobel prize winners and elite business schools to warn us of the impending catastrophe?" WHere were you? Where was Orban and Matolcsy?

[cba]

@ Eva,
Csaba László is actually centre left.

@Paul
Re the photo - how tall is Csaba?
I know Orbán's short, but THAT short?

If you look carefully, OV is wearing built up shoes.

[Kirsten]

"Csaba László is actually centre left."

It depends on how you would classify Fidesz two years back from now. As far as I know, László Csaba has been rather close to Fidesz for some time. I think Éva told it correctly, in the invited 'circle' are no opponents to the current government. But neither only sycophants, I think.

"And speaking of economists, where were those Nobel prize winners and elite business schools to warn us of the impending catastrophe?"

A valid point in my view. Some of them were actually warning. But in a complex system, this is often not enough.

[Paul]

"where were those Nobel prize winners and elite business schools to warn us of the impending catastrophe?"

As Kirsten says, some were, but were ignored. I'm no economist, but I was certainly telling anyone who would listen that it was all going to end in tears - no one can live on credit for ever, especially if everyone is doing it.

It was obvious it was all going to crash one day, the only thing that puzzled me was how long it took. For years I was the 'idiot' who wouldn't buy anything on credit, I actually SAVED up for things!

Now, of course, I'm the idiot who is paying the same price as everyone else, but never enjoyed the good times they did!

If there's a moral in there somewhere, I'm blowed if I can see it.