30.10.2008
October 28, 2008 (the date of publication in Russian)
Grigory Tinsky
RELAPSE AGAINST THE BACKDROP OF THE CRISIS
Does Hungary await a repetition of the political violence of 2006?
Hungary is now suffering from the global financial crisis more than any other Eastern European country. For the last month the forint came down 13%, Budapest stock exchange index lost 40%. Serious problems also appeared in the whole financial system of the country, and so national macroeconomic situation sharply deteriorated: GDP growth rate came down to 1.2% instead of expected 3%. As a consequence Hungary became the first member state of EU, which asked for the IMF help.
The global crisis has also affected other countries of Eastern Europe, especially the Czech Republic and Romania, where slumps of stock markets and national currency exchange rates.
The scale of financial crisis in Hungary is greater than in other states of the region uppermost because of the huge external debt, which has made the country more dependent on the situation in world markets. Hungarian government and companies extensively used foreign loans to finance their expenditures. The external debt of the country (both national and corporate) made up 89.9 billion euros in the second quarter of 2008, which is 93.8% of GDP. According to the Hungarian Central Bank, growing distrust in the national currency has led to the situation, that up to 90% of recently issued domestic loans in the country were nominated in euros or Swiss francs. In total, 30 per cent of public debt and about 60 per cent of corporate debt are denominated in foreign currencies. So, in the perspective of the future devaluation of the forint, this may lead to really destructive consequences for the economy and financial sector of the country. The worst thing (just like in Baltic countries) is that in Hungary the loans were mainly used for the purposes of consumption and not for higher competitiveness of the economy.
Additional pressure on the economy comes from the domestic crisis, which has been developing since 2006 as the result of bad state of public finances. Though Hungarian government succeeded in decreasing budget deficit from 9.3% of GDP in 2006 to 5% in 2007 and 3.4% of GDP in 2008 (estimate), the total debt of the government is now more than 65% of GDP. The world financial crisis made Hungarian state unable to finance its external debt.
Declining global demand also worsens the export opportunities of the country, so the growth of the economy becomes problematic. The current account deficit is projected 5.3 billion euros for this year (=4.9% of GDP), and under recent conditions it's going to grow. Of course the very situation influenced the credit rate of Hungary negatively. The key indicator of the credit risk of the country is 330 points. Though, it's better than in Romania (500 points) and Baltic countries (400 points).
The Hungarian government has been taking some steps to ease the crisis. First of all it desists from the increasing of taxes and tries to limit budget expenses. The planned budget deficit for 2009 is about 2.9% of GDP. Apart from that, the government established unlimited guarantees for the non-state bank deposits, reached the deal with the IMF providing Hungary with a 17-month stand-by loan of 12.5 billion euros, and got access to 5-billion-euro credit line from ECB. This money will secure some stability.
The government also allocated 3.2 billion euros for the support of small-scale and medium business.
The results of the global financial crisis are also felt by Romania and the Czech Republic. Their national currencies are also falling down, but the scale of tolls is far from Hungarian. Nevertheless Romanian government appropriated 2 billion leus (about 550 million euros) to support the banking system. Romanian authorities claim that the crisis does not threaten the country, but may lead to the fall of the leu, decrease of the availability of credit resources and decrease of the amount of investments. The government estimates, that in 2009 Romania will face the deceleration of economic growth, but the recession is not a possibility. Further fall of the koruna and stock market are also the most likely scenario for the Czech Republic, and still Czech officials assure that the condition of economy and finance is stable.
However, besides financial and economic troubles, Hungary got into an unpleasant situation with wild outburst of political extremism and terrorism in the country. Traditionally, the last week of October and the first week of November is the time for commemoration events dedicated to the anniversary of the anti-Communist revolt of 1956. In 2006, during the celebrations, the violent riots of the far-right have almost led to the resignation of the government.
Recently Budapest police announced the discovery of three explosive devices, which terrorists planned to use to blow up the railway station. The petrol bombs with timers were found in a car parked near the central station. Few days before, the battle grenade had been found near the building of the ruling Socialist Party.
According to some world-wide news services the atmosphere in Hungarian streets is rather nervous. October 30 (this day the "victory of the revolution" was announced in 1956) and November 4-9 (the most vehement fights of Hungarian rebels against Soviet forces lasted during these days) are told to become dangerous, as public order might be broken. And meanwhile, far-right parties promise to assault and get control over some governmental buildings.
Last year 19 people were injured during the clashes with police. This year the police in advance have already been provided with water-jets and tear-gas. The government says that the using of these means against manifestations of discontented people is required because of the terrorists hiding among them. The information about arrests of rightwing extremists groups armed with "Molotov cocktails" is presented as a confirmation.
Now the residences of major government institutions are encircled with concrete blocks. The government isn't only afraid of their political opponents and terrorists, but it also fears ordinary Hungarians, who willingly join any protests against ruling socialists, who made the country go bankrupt.
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