Corruption is a feature, not a bug / Der Untergang

What is behind Hungary’s biggest ever bond release?

On September 14-15 the Hungarian government took on record debt, issuing an unprecedented amount of FX denominated bonds.

The Hungarian Government Debt Management Center (ÁKK) has issued 4.5 billion euros of FX bonds on September 14-15 on top of its original plan for the year. The ÁKK’s move is the largest ever, one day new debt issuance in Hungarian history. The most obvious explanation of the move is the ongoing dispute between Orbán and the EU over unconditional access to the the EU’s Covid recovery fund.

The full sum of the EU’s coronavirus recovery fund to Hungary would total around 16 billion euros, but Orbán chose to forgo the 9.1 billion euro credit line of the package and only asked for the grants, worth 6.9 billion euros. He then justified the decision by saying he wants to restart the economy with the lowest possible foreign debt ratio – that excuse is going out the window right now. The real reason he didn’t ask for the money was that it came with conditions to behave in a more civilized manner, steal less conspicuously and pay at least lip service to European values and common strategic interests.

Orbán needs to cover the shortfall of the Covid recovery fund at least until the 2022 elections, until which he is playing the giving tree, doling out unheard-of sums to voters. But there is more to it.

The head of ÁKK gave an exhaustingly long explanation to the move, citing a gazillion technicalities that insult the intellect when the political context is so profoundly ignored. ÁKK also claims to help cover the potentially delayed EU transfers, and they are also tasked to finance “other discretionary government expenditures in 2021 as well as to pre-finance some 2022 budgetary expenditures” (election spending). The reason he gave that sounded most like an argument was that the GDP-bounce after the pandemic was high enough to allow for the record debt increase – legally.

Few remember, but in 2010, when Orbán came back into power, we used to be at war with the national debt. (He always has to be at war with something – and make Hungarians hysterically afraid of and aggressive at the thing he chose to war with.) He was at war especially with foreign denominated national debt that didn’t allow him to devalue the forint and impose a hidden tax on Hungarians. Orbán had even carved it into his new, unilaterally created constitution that the national debt must never surpass half the country’s national product (it was hovering around 80% at the time) and as long as those numbers are not met the government must only make moves that reduce it. And there was a decade-long effort to turn as much of the debt into forints as possible, selling it to domestic entities whenever possible. This, too, helped the central bank to devalue the forint and capture a handsome profit – while the government had more room for maneuver to pursue its own interests – which is not the same as the country’s or of anyone who lives in it.

For a run-of-the-mill authoritarian mind a constitutional debt ceiling sounds like a soothing, heart-warming piece of legislation that proves how prudent our father is. For an economic mind it sounds like a knee-jerk legislative attempt to regulate reality by the force of the law – leaving no room for future decisions.

For a sane mind it sounds like the sick central planning compulsion of the old marxist comrades has never gone away, it manifests itself in every move the supposedly market-friendly Orbán ever makes, angrily and forcefully trying to legislate what everyone ever does. Legislating reality from the number of children a person must produce to the state to the amount of money goods and services are permitted to cost – the political mental illness of forcing political will upon reality is back.

We have come a long way from 2010 Orbán who wrote into his constitution that national debt must not surpass half of the GDP. Now it is all about siphoning out as much money as possible, as fast as possible. And that includes money that is not yet made.

Its purpose is twofold. One is fairly obvious: theft. One can siphon off money the country hasn’t even made yet, on top of money (and assets) that belonged to the state already. The other purpose is to paralyze any future government that is not led by Orbán himself. Because at this point in time only he himself is able to govern Hungary. Even another Fidesz government with someone else at the helm would be unable to govern – for economic as well as legal reasons Orbán built into the books – let alone a non-Fidesz one. Many on the opposition side spend thousands of hours arguing exactly how it would be possible to govern after Orbán.

Items on Orbán’s bucket list running up to the 2022 elections are getting checked off fast:

  • Making the job of any future government impossible
  • Play the country’s wealth (private and state-owned) into loyalist hands as fast as possible
  • Starve the opposition (parties, politicians as well as opposition-led districts and cities) way before the elections, demonstrating to voters what happens if they vote against Orbán (Budapest is already running on debt).
  • Give, give, give unheard-of sums to voters and tell them it was to vote for him.

Orbán’s Bucket List

Orbán’s attempts to secure his loyalists’ and his own economic future even in the case of an election defeat may sound like a hopeful development – but it is also causing irreparable damage. This debt increase in just the tip of the iceberg. Things are happening so fats, the international public opinion can’t keep up with it – not even now when they are at least starting to become suspicious of Orbán.

No one has any idea how to legally reclaim the uncounted wealth and assets Orbán is currently putting into loyalist pockets in his last run on the state, and how to reclaim even legislative sovereignty from entities that are de facto put out of the legal reach of any future government.

These meritless loyalists will most likely remain with us forever, as the new aristocracy, forever sabotaging and hurting any government that is not to their own liking – as well as poisoning the economy by their gargantuan economic power and even larger incompetence, having never created wealth on their own. MCC, Danube and Batthyány Foundations’ stooges (and their foreign beneficiaries) will continue to roam the world on lavish expense accounts on their 2+ billion euro gift from the state and sing Orbán’s praise. His fronts and family will continue to show off their wealth and kneecap legitimate businesses just to obtain them. And his men in positions of power, irremovable by future governments, will continue to haunt the political life of the country unless it is Orbán’s supermajority again after 2022.

Some argue that it would create a “dangerous” precedent to put the regime’s meritless tender winners on trial. But look what a precedent it created that the communist comrades managed to save their wealth and influence into the post-1989 Hungary: Orbán saw that happening and after a decade of fuming ad raging against it, he decided to do the same thing himself. He now builds his own strategy on exactly the unaccountability of political elites: that whatever he commits, he will get away with it, just like the communist comrades did. Precedents matter indeed. And now we also know what happens when they are the wrong ones.

As for the debt – ten years ago Orbán has nationalized the entire wealth of the private pension funds to serve as seed money for his loyalists (it was before the EU funds started flowing in earnest). That was twice the amount taken on today and it all disappeared since. Apart from a few vanity purchases, like buying back shares of national champions from Russia (they were not for sale and Putin named his price) the sum disappeared entirely. And now even those shares have all disappeared into Orbán’s new wealth management “foundations” he is using to line the pockets of loyalists and secure a life out of government. There is no reason to expect this new debt to be spent any better than that. If anything, the situation is more urgent for him now.

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