by Rustam Jamilov*
Victor Orbán has spent half of his political life trying to climb up the Hungarian ruling ladder. It seems that he will spend the other half fighting to defend it against all the opposition he now faces. And I am not talking just about the political antagonism that is surrounding Mr. Orbán as we speak. He is completely locked up from all sides in a labyrinth of his own creation, and there is no easy way out.
External Politics: Mr. Orbán can be certain about one thing: he should prepare to confront non-ending pressures from the West, for as long his controversial policy and legislative reforms remain effective. It all began with letters of concern sent from Brussels, which later evolved into a disappointment from the United States. Very soon Hungary will feel the real pain coming from the IMF and the World Bank. Eventually, even the “eastern bloc” countries, as well as Russia, will start to turn their faces away from this alienating nation and in favor of the domineering West. Politically, this is not a game that Orbán can win.
Domestic Opposition: While it’s true that Fidesz was able to dominate on the latest national parliamentary elections, this result can be attributed to the disfragmentation of all political opposition. What I see on the horizon is a more determined, unified opposition party alignment under strong leadership, and even foreign induced (or funded) political gatherings. All of which will more than certainly take Mr. Orbán off his throne after the next elections.
Economics: There are so many things that are fundamentally wrong with the state of Hungary’s economic development. For starters, it doesn’t have the right leadership in place to guide the country through these hard times. But more importantly, Hungary is struggling to get rid of the massive household debt cloud as well as the government’s fiscal imbalance. Moreover, Hungarians are looking ahead at years of low growth, poor industrial competitiveness, and yes – higher-than-optimal unemployment. Add to this the Fidescz’s central bank laws (which can potentially limit the national bank’s independence) and you are looking at stagflation: slow growth and high inflation, the latter being caused by the politically dependent central bank which is forced to finance government debt by printing money.
Finance: It’s no secret that Hungary should waive a goodbye at any future support loans from the IMF, and the EU’s cohesion funds too for that matter. When Hungary will need a rescue package, very few (if any at all) European nations will agree to recapitalize the Hungarian financial system. Public borrowing will be happening at record-high, unsustainable interest rates, partially because Moody's has recently downgraded Hungary's debt rating to "junk" status. Foreign banks will disinvest from this market, leaving the country in a massive capital withdrawal shock. This capital withdrawal will further weaken the already struggling Forint. It's known that Hungarians have been financing their asset purchases in the past 3-5 years with foreign currencies, predominantly with Swiss Francs. It’s all too easy to predict that financial conditions of domestic borrowers will deteriorate even more, if Forint continues to depreciate. And all the programs that Mr. Orbán installed in order to assist domestic borrowers with escalating debt obligations will practically evaporate in value. It’s really so unfortunate that a country, located in the heart of the world’s largest trading bloc, is secluding itself from all the trade and financial benefits, in a financial suicide that only Hungarians could commit (Hungary's suicide rates are arguably the highest in the world).
Demographics: Even if Mr. Orbán manages to keep all the quasi-authoritarian strings in his hands, it won’t be long before the people of Hungary will simply immigrate away from the country; with an already aging population, the young and dynamic will want to live in a free society where their votes actually matter, where freedom of speech and the media don’t suffer hits and attacks from the State, where central banks conduct monetary policy independently from the central government, and where is some logical, economics- and not ideology-based long-run planning. Hungary's 10 million population will reduce to around 5 mln by 2035. Since Mr. Orbán pledges to remain in power for at least 25 years, this estimate is (unfortunately) more than realistic.
Whether we like it or not, Hungary is on a non-preventable path towards a political, economic, financial, and demographical fiasco. Orbán’s endgame is approaching, and it seems that he can’t get away with this one.
* Rustam Jamilov
From Baku, Azerbaijan
Junior Economist at the Central Bank of the Republic of Azerbaijan
Lecturer at Azerbaijan State Economic University
Alumnus of CEU Business School, Bocconi University, Dartmouth College
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