‘Hungary's woes are basically economic’

As the Righwing rises in his country, eminent Hungarian economist Dr Sandor Richter speaks to Hardnews in an exclusive interview about politics and economics of the region 
Mehru Jaffer Vienna

Hungarian economist Sander Richter is affiliated with the Vienna Institute for International Economic Studies. He spoke to Hardnews in the Austrian capital only on the condition that he will not comment on the pathetic political situation in Budapest. "I am an economist and will speak only of the mess that the economy is in," he said, before speaking at length about Hungary's economic and political situation.

 At the beginning of the transition period, Hungary enjoyed significant advantages compared to other countries of the region. Richter says the reason is that it had introduced market-friendly reforms even when under communism. The country was known as the happiest barrack in the communist camp and enjoyed many advantages not available to other communist countries in the Eastern bloc.

However, said the economist, the so called 'Goulash Economy' that was the envy of its time, was financed mostly by foreign money. During the transition period, this mountain of debt surfaced to create serious problems at the micro-level. Huge public deficits and current account deficits were eventually stabilised in 1995, paving way for the 'golden years' between 1995 and 2001.

"The root of the current problem goes back to 2001," he said. When the conservative Fidesz party won elections, they inherited a government budget that was balanced. But the Fidesz embarked on an extensive spending spree while in government and very soon the treasury dried up in the absence of real earnings. During the following election campaign both the Socialists and Fidesz indulged in a competition of promises that were impossible to fulfill.

"The Socialists, for instance, promised 13 salaries and pensions along side 15 per cent increase in wages of public servants. The Fidesz offered 14 salaries and pensions if they were voted to power. None questioned how a poor country like Hungary could afford to give away money without first earning it. While in power the Socialists earned the wrath of voters for not delivering promises made by them. Fidesz - the main opposition party - attacked the government for having lied during the election campaign. The Socialists also admitted in 2006 that they had lied day and night about the real state of the economy. This made the voters very unhappy and angry. Many corruption scandals also unfolded during this time."

A caretaker government took over a year ago and managed to save the country from total collapse. But the harsh effects of reforms made the people hate the government. Even as the economy had stabilised by 2008, an international economic crisis happened.

Today Hungary struggles to correct the troubled domestic economy as well as faces the effects of the international economic crisis. "Need of the hour is sober, rational and strict reforms. But the people hate reforms. Hungarians expect miracles from Fidesz. Voters were in a very bad mood during the last elections last month that catapulted the Fidesz into absolute majority in the parliament. Now the Fidesz will form a new government but how will it solve the old problem? Fidesz abhors reforms and so do the people. But in my opinion reforms are the only solution to Hungary's woes."