From early morning till late at night, unending processions
of yellow trams, blue buses and general traffic roar, whirr and
squeal their passage around Moszkva ter the busy
terminal and junction that feeds the western half of Budapest.
Meanwhile underground, Soviet-era metro trains suck in and
disgorge as many as 400 passengers per minute.
It may not be Tokyo. But foreign visitors invariably praise
BKV, Budapest Transport, for its efficiency.
Ask the opinion of a local, however, and the answer is often
diametrically opposite. BKV? Its bad, says
Janos Kovacs, a retired theatre technician, asked at random in
the middle of this hubbub. Kovacss immediate comment is
not about the service but about the BKV managers under
investigation for embezzling millions of forint.
Lets face it, half the management are in prison, or
under investigation, Kovacs says.
Indeed, it is bad: one scam involves an alleged
multi-million forint severance package for a senior manageress
who continued in her position at the company. Nobody,
except the police, knows how much money is involved, says
Gabor Demszky, mayor of Budapest, and as such the person
ultimately responsible for the BKV, admitted this spring.
But the BKV scandals are only the latest in a series of
alleged high-value rip-offs at state-owned companies and
Public disgust led to a massive swing to the right in last
months general elections and an overwhelming victory for
Fidesz, the centre-right party led by one-time anti-Communist
student activist Viktor Orban.
The Socialists came a poor second, with Jobbik, a far-right
party entering parliament for the first time, a close third.
The public clearly associated the Socialists with these
scandals; it damaged them a lot, says Csaba Toth, the
strategic director of Republikon Intezet, a liberal-leaning
political think tank.
Armed with such political ammunition plus the
continual denunciation of Socialist claims to have put the
Hungarian economy back on a sustainable basis Orban
achieved an unprecedented victory in the elections, amassing
263 of the 386 seats in parliament, a massive 68% majority.
The Socialists trailed with a mere 59 seats (or 15%), while
Jobbik, the radical-right new entrant, closed third with 47
seats (12%). The success of the green LMP, with 16 seats (4%),
was put down to the power of the protest vote. There is one
independent, a Jobbik sympathizer.
Orban has promised to clean up public life, bolster law and
order, and boost the economy by reducing taxes, streamlining
bureaucracy and creating new jobs.
The need to create growth is clear: Hungary has been hit
hard by the recession. Exports of cars and other manufactured
goods a pillar of the economy slumped from
September 2008. Because of worries over Hungarys ability
to manage both the budget deficit and its debt (at around 80%
of GDP), the central bank felt compelled to raise the base rate
to 11.5% while the government secured a standby loan with the
IMF for E20 million.
Despite these moves the currency lost almost a third of its
value within six months, bottoming out in March last year at
Since then, tough austerity measures, including tax hikes
and cuts in pensions, have brought stability; the economic
slide has been halted (growth is projected at 0% this year)
while the budget deficit a principal concern for the IMF
came in fractionally above target at 4.0% last year.
Meanwhile, the forint has recovered to Ft265/E; the base rate
has been successively trimmed to 5.25%, the lowest level since
the change of regime in 1990.
All this came at a cost, however: the economy contracted by
6.3% in 2009, and despite government support to maintain jobs,
unemployment has climbed to 11.4%, a level not seen since
Fidesz pounced on these types of statistics to press his
political advantage in the campaign. Unemployment is at a
16-year negative record. As for the 3.8% budget deficit target,
that is a lie. The base rate is now at 5.5% [as was], but we
said it should have been put there 18 months ago, to save
Hungarian SMEs [small and medium enterprises] and jobs,
Peter Szijjarto, Fidesz chief-of-staff, said recently.
Professional observers sift through such rhetoric with care.
Most accept that the budget deficit will exceed the target,
though this is partly due to fierce Fidesz opposition thwarting
a number of measures, which has eroded budget revenues
including a planned property tax, which was ultimately declared
The deficit target will definitely be missed, but as
for dropping the base rate 18 months ago, it means they
dont understand how the markets work, says Zoltan
Torok, head of research at Raiffeisen Bank, Hungary.
Fideszs promise to cut taxes while boosting jobs
naturally adds to concerns that the budget deficit will be
further off target although most analysts say that
economic realities will restrict the new government to more
symbolic moves, at least initially.
As Hungary is still in the IMF programme, we expect
the new government first to agree with the IMF on a new
upwardly revised 2010 deficit target. As for tax cuts,
initially they may reduce the VAT on some food items, with a
very gradual cutting scheme from 2011, says Torok.
Fideszs resounding victory has one additional
ramification: by winning more than two-thirds of parliamentary
seats, Orban can modify the constitution. Indeed, he has
pledged to reform Hungarys bloated political circles,
cutting by half the number of MPs and local councillors
a move that should make significant budgetary savings.
More ominously, Fideszs criticism of the central bank
has raised concerns that governor Andras Simor could be
targeted for removal. They would like to get rid of
Governor Simor, says Torok. But actually its
not possible. I can imagine that Fidesz will be loud in verbal
attacks, and make some institutional changes. It will sour the
taste for investors in Hungary, but nothing more, he
So what of the promised cuts in tax and bureaucracy to
support the real economy? Such moves are critical to support
small and medium-sized businesses, particularly at a time when
many companies are struggling with late payments from
James Kinnell, managing director at King Sturge, a property
consultancy in Budapest, says recent measures initiated by the
outgoing government, including a reduction of payroll taxes by
5%, have helped, but that further reform is vital.
The only way Hungary can improve international
business activity is by having a more transparent and simple
tax, legal and economic system, he says.