Bankers and financiers from across the region, along with Hungarian government and business representatives, brushed off the shock news of the UK’s Brexit vote and remained largely upbeat about the economic prospects for Central and Eastern Europe in general – and Hungary in particular – at a business forum in Budapest on June 24.
“There is no agency or forecast opinion leader who is not having the same opinion, namely that Central and Eastern Europe, including Hungary, will be the growth engine of the European Union,” Mihaly Patai, president of the Hungarian Banking Association and conference sponsor, declared in his opening remarks to the Business Forum “Supporting Economic Growth in Hungary and the CEE Region”, organised as part of the events of the 105th Council Meeting of the International Investment Bank (IIB).
Nikolay Kosov, chairman of the Moscow-headquartered IIB, and another co-sponsor of the forum, was similarly buoyant. Speaking before signing a clutch of agreements between the IIB and international partners – including a €15mn credit line and €1.5mn guarantee for educational infrastructure development in Budapest – he said: “Congratulations to [economy] Minister Varga in particular, and to his team, and to the whole economic bloc of Hungarian government, because I’m really impressed with the progress Hungary has achieved in the past four to five years in economic development, social development [and] in upgrading its international investment ratings.”
A bit of diplomatic flattery for the host nation? Not at all, according to Agnes Hornung, state secretary at Hungary’s economy ministry, who, in case anyone was in doubt, sought to ram home the point in a panel discussion on Hungary.
Hornung, who from 2012 served for three years as part of Hungary’s permanent representation to the EU had encountered deep scepticism regarding her country’s economic policies by Brussels-based analysts, was keen to hit back hard.
Citing recent statistics on economic growth, employment, macro-economic balances, state debt and the government’s drive to convert foreign-exchange loans to domestic forint, she said the doubters had been proved wrong. “Today, I think this has crystalised that these reforms were really good, and these are working… I can see here, from Budapest, is that all international institutions [have] changed their mind, their attitudes and their behaviour towards Hungary.”
While she admitted work was still needed, for example to reduce the administrative burdens on business, all in all the controversial policies enacted since the Fidesz government of Prime Minister Viktor Orban gained power in 2010 have been a thorough, sustainable success.
Moreover, the credit for this remarkable turnaround belongs to Hungary for pulling itself up by its bootstraps. “[The economic results] show that this GDP growth is standing on its own feet, so we are not getting it from [any] foreign impulse, but we could create an environment here that is serving as a base for growth in the future,” the state secretary insisted.
It all sounded good, very good. Especially as there was not a murmur of dissent from any panellists in the Hungarian session: nor, indeed, was the word “corruption” once mentioned. The Ministry of National Economy, as the third co-sponsor of the forum, had seemingly not invited any potentially critical specialists, while in the earlier session on the CEE region talk was of more general nature, such as the need to support SMEs, attract venture capital and associated know-how, develop equity financing, and reduce non-performing loans of commercial banks.
When it came to specifics, only Alexander Lehmann, lead economist for the region with the European Bank for Reconstruction and Development, voiced any concern over Orban’s more radical policies – citing in a mildly critical manner the “nationalisation of the private pension funds in Hungary” in 2011. (The Hungarian government's reduction in public debt looks remarkably less impressive when the €11bn, or 9% of GDP, confiscation of private pension funds at that time is taken into account.)
International institutions, while certainly acknowledging the brighter economic statistics in 2014-15, are far from convinced when it comes to Orban’s economic policies. As the OECD noted in a report issued in May, average GDP growth over the past five years is a mere 1.3%, making Hungary the laggard among its regional peers, while investment, though rising, remains lower than before the crisis. “Frequent changes in the regulatory framework undermine investment incentives,” the report stated.
As for any belief that Hungary’s recovery was achieved without “foreign impulse”, the GDP growth figures would look significantly less rosy if EU funding were stripped out. “Hungary's economic performance is very strongly connected with EU funding. Net EU funding was 4.4% of GNI [gross national income] over the past four years, double the Slovak and Romanian numbers. If Hungary’s net funding were only 2%, there would be no GDP growth at all,” points out Andras Vertes of Budapest-based economic think-tank GKI.
Sign of progress
For the IIB, the forum was a clear sign of its progress in the region: along with the credit line for real estate management at the Budapest University of Technology and Economics, it signed a cooperation agreement with Hungary's OTP Bank (a serious regional player) and created goodwill with a €30,000 grant to the WWF Hungary for a water resource risk assessment project.
Perhaps even more importantly (though not directly connected to the region), it also sealed a cooperation agreement with the Central Bank of Cuba, confirming a “special status of the IIB as a global development finance institution… and the only multilateral development bank with Cuba as a full member”.
But if the IIB left Budapest relying on the economic analysis of Hungary aired at the forum, it has a very slanted view.