beyondbrics

Hungary is not Greece – its public debt is high for central Europe at 80 per cent of GDP but much lower than the Hellenic Republic, or the United Kingdom for that matter. Nor is it in any immediate need of International Monetary Fund financing.

But in allowing the International Monetary Fund/European Union team to fly back home without an agreement, prime minister Viktor Orban, a die-hard soccer fan, has scored another spectacular own goal this weekend. With the forint down 2.4 per cent at 9:40am in Budapest today, he has not had to wait long to see the results.

After a stream of media reports hinted last week at severe strains between IMF and government officials, international lenders tried to put a brave face on things on Saturday.

But it is clear that Hungary’s €20bn standby programme – once the IMF’s flagship of fiscal rectitude – has gone badly awry.

The IMF and EU meted out criticism of the government’s overly short-term, distortive measures, a lack of policy detail and disregard for central bank independence. Hungary’s controversial HUF 200bn ($920m) financial sector level was deemed likely to adversely effect lending and growth.

And crucially, the IMF drew a line in the sand by telling Hungary that next year’s budget deficit target of less than 3 per cent was non-negotiable.

None of these comments were particularly surprising, which begs the question of what the government thought it was playing at.

Part of the answer is surely that after two months in office, ministers remain woefully unprepared and were unable to give the IMF the kind of answers it was looking for.

Another part is certainly political: in spite of holding an unprecedented two-thirds majority in the national parliament, the government does not want to upset the apple cart by announcing unpopular measures before key municipal elections in October.

But there also remains an inescapable feeling that Orban and his inner circle simply do not get it.

As if to prove the point, Gyorgy Matolcsy, economy minister, appeared on television early on Monday and insisted that further austerity packages were “out of the question”.

Last month’s market turmoil was apparently not enough. Welcome to round two.