Fidesz Prepares for Governance with a Market-Friendly Program

Fidesz, which had been pursuing a strategy of “tactical reticence” in its campaign communications, recently released its election manifesto entitled “The Politics of National Affairs.” The program offers little in the way of news and even less in the way of concrete proposals. But if we read the document in connection with Fidesz leaders’ other statements in the media, it is just possible to make out the shape of the next government’s economic policy, however foggy it may be. The program lacks any discussion of the additional austerity measures that many analysts say will be necessary. At the same time, it also excludes the kinds of concrete promises that Fidesz has made in previous election campaigns. What remains is a strong promise to strengthen the economy and create jobs as a matter of priority.

A cautious shift to the economic right?

• Over the past few years, Fidesz has pursued a populist, “all-things-for-all-people” agenda, simultaneously promising to both extend the welfare state and serve business interests (lower taxes, less bureaucracy). But in the past few months, Fidesz seems to have set aside its promises of government largesse (e.g. restoring the “thirteenth month” wage benefit for state employees) along with its pledges to undo Prime Minister Gordon Bajnai’s fiscal-discipline measures. These tendencies indicate an important shift toward a right-wing, “neoliberal” economic policy.
• The party’s careful approach to economic questions is evident in the fact that its program tries to stretch out the fulfillment period for its earlier promises.
  • A good example is the party’s promise to create 1 million jobs: The new program says this plan will not reach fruition for 10 years.
  • Fidesz’s caution is also reflected in its politicians’ proposals for crisis-management steps instead of immediate, radical economic stimulus at the outset of the new government. Fidesz leaders also say they anticipate finding “mass graves in the cupboard,” signaling that they will focus on prosecuting politicians from the outgoing government in relation to economic corruption instead of pursuing a their own economic agenda.
  • Furthermore, Fidesz is no longer talking about a pótköltségvetés (supplementary budget) for 2010 to broaden the new government’s room for fiscal maneuver. In a recent interview Orbán talked about the need to assess the country’s economic and fiscal situation “before preparing the 2011 budget.” This represents a triumph of fiscal realism over pie-in-the-sky promises.
• Fidesz party president Viktor Orbán has deliberately been making campaign appearances with business leaders. Orbán pledged both tax cuts and solidarity with the business community at a recent forum sponsored by the Alliance of Entrepreneurs and Employers (VOSZ). He also lined up endorsements from such luminaries as László Parragh, president of the Hungarian Chamber of Commerce and Industry, and former Hungarian central bank Governor Zsigmond Járai, both of whom are longtime advocates of reducing state redistribution of wealth. Representatives from social groups and unions are conspicuously absent from Fidesz’s stump speeches and meetings – especially Orbán’s.
• Fidesz has replaced its earlier etatist economic program with a pronouncedly pro-market approach. Fidesz’s program eschews criticism of international institutions and multinational companies. On the contrary, the program puts heavy emphasis on economic protectionism, such as giving Hungarian corporations priority in public procurement.

Currency rate and budget targets

• It appears Fidesz may want to kick-start the economy with a lower forint exchange rate. This idea is supported by two items in the program: The emphasis on export-led growth and the party’s desire to reduce the stock of bank loans denominated in foreign currency. Since nearly 3 million Hungarians live in households that have foreign-denominated loans, the weak-forint policy would only be politically viable if Fidesz actually finds a way to “convert” these loans to forint-based credits.
• Fidesz wants to remove National Bank of Hungary Governor András Simor and combine the NBH and the Financial Supervisory Authority (PSZAF) into one institution. The success of this move is far from sure, and an aggressive removal of Simor could damage Fidesz’s efforts to build a market-friendly image.
• Hungary’s 2010 budget deficit will be higher than the 3.8% of GDP stipulated in the country’s loan agreement with the International Monetary Fund, but will not reach 8% of GDP as some Fidesz politicians have said. The party will probably be able to negotiate an agreement to let the budget deficit slide to around 5% of GDP.
• The new government’s deficit target will depend on the results of negotiations with the IMF and the EU. Fidesz appears to remain committed to extending the contract with the IMF: Its leaders have confirmed this several times in the recent past while holding meetings with the IMF and the EU. This may leave the party in a difficult position since it harshly criticized the Socialist-led government for strengthening the Hungarian economy’s dependence on foreign forces. A new credit contract may leave Fidesz vulnerable to criticism from the ultranationalist Jobbik party.
• Persuading the IMF to agree to a new deficit target will be relatively easy; convincing the EU will be a real challenge. The European Commission expects Fidesz to uphold Hungary’s deficit commitments lest other member states think it is all right loosen their budgetary discipline as well, said Gert-Jan Koopman, adviser to EC President José-Manuel Barrosso on March 15. The next day, Economic and Financial Affairs Commissioner Olli Rehn told journalists the EU would continue to deal with Eurozone candidates “on the basis of rigorous rules."
• Fidesz will only win permission to loosen the deficit target if it promises to see through structural reforms such as freezing spending, overhauling the municipality system or implementing a two-year budget, as has been proposed by the party’s economic policymakers.

Fidesz’s main economic promises and its chances of realizing them

• Tax cuts. While the objective is obvious, the timing, size and methods of lowering taxes remain uncertain. Not even Fidesz knows how much room it will have for maneuver: This largely depends on outside factors such as the IMF, the EU and the general economic climate. Fidesz has supplanted its earlier promises of “immediate, radical tax cuts” with a pledge to reduce business taxes to the levels of other Central European countries within four years. Individuals will have to wait six years.
• Overhauling welfare. This is one of the concrete goals Fidesz sets out in its program. Reforming social spending would mean more money for the budget. But since the number of people entitled to state support in Hungary is relatively high (213,000 in 2008 according to Hungarian statistical Office, which is more than 2% of the population) this step would entail serious risks for the government.  
• Reducing bureaucracy. While a simple majority is enough to cut bureaucracy in the national government, a two-thirds majority is required to change the system of municipal governments. Municipalities represent a mammoth expense. However, Fidesz’s progress in this area may be stymied by the political conflicts that the reorganization will generate, not to mention the inevitable layoffs. It remains to seen whether Fidesz will be able to reconcile its promises of job creation with firing tens of thousands of public-sector workers – a step that would be essential for any kind of real savings to be achieved.

Toward a System of Superministries?

• Fidesz has committed itself to a system of “superministries” that would lodge several of Hungary’s current government ministries under one roof. The program mentions five main areas along with the people who will probably run them: Economy – György Matolcsy; Home Affairs – János Lázár; Healthcare – Imre Pesti; Social Affairs, Miklós Soltész; Chancellery – Tibor Navracsics. The superministry system’s advantage is that it will appeal voters (less bureaucracy) without necessitating large-scale reorganization.

Fidesz Statements on Economic Policy