Portfolio blogger

Tuesday, November 27, 2012


The Monetary Council of the Hungarian National Bank cut the interest rates again. This is no surprise. It can be debated whether the National Bank should only follow the inflation target (the prevailing view in the developed world, at least in Europe) and whether the cut is justified. It is a little bizarre that always the external members (nominated by the government) vote for the cut and the internals for a hold. Last time the National Bank analyst team submitted a study which argued strongly against a cut but it was ignored. It is also becoming commonplace that as long as the president of the National Bank is the person nominated by the previous government which was that of another party, they want to keep interest rates high. The communiqué of the Monetary Council explaining the latest cut, however, is really absurd: The economic and financial portal Portfolio.hu (disclosure: this blog is a "Portfolio" blog - this means that if the editors of portfolio.hu decide, they put a link to a post on their main page and the title page of the blog runs the Portfolio logo and a running news strip) simply published the communiqué just commenting that there is no guidance in the communiqué whether the cuts will continue but it seems that it will. The previous one contained a hint that it will under certain circumstances, i.e. when "data arriving in the next months support the durability of the favourable financial developments and confirm that medium term inflationary outlook is coherent to the target of 3%". OK, so what did the Monetary Council say this time. I only quote the most striking parts: "Medium term inflationary trends can be moderated by the long-term continuing improvement of the risk assessment." This immediately after downgrading and with the perspective of further downgrading. "The consumer price index is basically driven by the increase of food prices, tax increases and other administrative measures." Tax increases - the government propaganda says that they decreased taxes. The extraordinary taxes on financial institutions, telecoms etc. were declared to stay. Administrative measures increasing prices - I do not know what they are but this is not a praise of government either and in particular does not support the statement which follows: "Inflation will significantly exceed the target this year and next year" (this statement just does not explain the rate cut) "but with the running out (a typical saynothing Hungarian term meaning just the expiry of the impact) of the shocks which increased the price level, more and more the slight desinflationary effect of weak demand will have an impact." Apart from the gloomy perspective - which will come up in the next sentence again - painted by this statement, the factors outlined being here to stay, I do not see a justification for optimism. So continuation: "It is paramount that the increase next year of the salaries and within that of the minimum wages (don't ask me why the plural, there is only one set minimum wage) should be in line with the increase in productivity." This is a laudable objective but does spell havoc for the employees. OK, if they had said that the real wages, I could maybe agree. What follows, may be true but spells trouble both for the economy and for inflation:"The measures announced support the commitment of the government for a low budget deficit. Significant uncertainty accompanies the expected macroeconomic impact of the measures: they do not influence significantly the short term outlook of the real economy and inflation, but could cause a cost side inflationary pressure on the middle term (here you have the mid term favourable outlook justifying the cut) and through decrease of the capital attraction capability of the banking system (I would rather say the propensity to lend, not to attract capital - this latter is decreased by the decrease of the interest rates) and the limitation of lending (OK, here we are) can moderate the growth potential of the economy." In a final paragraph, they again emphasise that an oversupply will limit inflation. To me, the many doomsaying passages in the communiqué serve as a proof that it was the improvement of the economic outlook which was the mean objective of the cut and they tried to hide it behind inflationary arguments. Apparently also some parts of a professional analysis were taken over, which cause a significant incoherence in the message given.

Sunday, November 18, 2012

Together - Együtt 2014

Good news - Bad news. I'm afraid mostly bad news today. The co-operation platform launched the 23rd October (see my post ) was never promised to have an easy way. Its founder Gordon Bajnai, being an ex-minister in the Gyurcsány-government, prime minister thereafter, was exposed to "character murder" pinpointing a past business failure which harmed a number of small entrepreneurs who sold to the company - the links of Bajnai to the company then are up for discussion but he won a number of lawsuits on the topic which cleared him personally - that the comp,any was due to pay indemnities is no surprise as no one doubts it owed money but bankruptcy is the situation where you cannot pay and limited liability companies are invented to stop the failure of a business to cripple its owners. The panic caused among the ruling party (formally parties) is the good news, and also that the movement achieved the political sympathy rating which in votes would be needed to get into parliament (5%) within days is the good news. Its manifesto was signed by a number of personalities who have credibility (including the founder of the "Danube circle" or Duna-kör, which was one of the cores of the resistance during communism, taking up the symbolic case of the Bős-Nagymaros dam. However, one can hear voices that the signatories are "people of the bad socialist regime" - not the one before 1990 but the "pasteightyears" as FIDESZ likes to condemn. Here the bad news starts. But there are only two people among the signatories who were politicians and both were in the back lines, in particular during the Gyurcsány-government, actually both tied to the smaller partner, the liberal SzDSz. Some days after the announcement of the start of the movement as an association, FIDESZ changed the draft election law under discussion (well, this was an exaggeration) in Parliament to forbid for associations to participate in the elections. This is a sign of their panic, referred to above. Furthermore, the election campaign will be shortened and the media available for election advertisements limited to the public service media (i.e. commercial tv which is watched really is excluded) and to open air posters (in which area FIDESZ-friendly enterprises have a dominant position). Now this can be regarded already a significant limitation of citizens' rights in my opinion. A package of more than 200 modification proposals was submitted by one member of the FIDESZ and half a day was given to the MPs to read, discuss and agree in the factions. The debate was very short and - as is usual for critical issues - scheduled for late night. That's why I called the term "discussed" an exaggeration. Of course private individuals or associations can submit private advertisements which have nothing to do with the elections (but expect a scrutiny by friendly attorneys and courts - here setting the retirement age for judges will serve well). So did a pseudo-civil forum start an ad on buses (look at the picture) (of the Budapest Transport Company which is also managed by political appointees) depicting Bajnai and Gyurcsány together, with the text "they ruined the country together" etc. Some facts about the association: its president, who also organised the pro-government "Peace march" also mentioned in my 23rd October article, is also chairman of the committee distributing the government funds for civil associations (NGO's) and the association received government subsidies this year. So is this election advertising? And finally, the congress of LMP (Politics can be different), the anti-globalist green and human-rights-oriented party, which came from nowhere into Parliament (a nice feat in the Hungarian system) in 2010, refused to co-operate with the movement of Bajnai. The decision was more diplomatic, of course: the congress empowered the leaders to start talks about anything except joining. The also new 4K! (fourth republic - the present one is called the third) welcomed the decision which they took before. This formation is brand new, was created by secession from Milla ("a million for the freedom of Hungarian press", a movement which started on Facebook, achieved about a hundred thousand likes but staged several successful demonstrations - one of these was the 23rd October referred to above where Bajnai announced starting the movement Együtt 2014 (Together 2014, latter being the year of the next elections). Its leader said that they want to resemble most the Scandinavian social democrats, thus they also have a left-wing programme. So two new formations refused co-operation. 4K! could be considered irrelevant (their reaction to the announcement of president Barroso on a federal Europe simply was that they also require the harmonisation of social systems - in a tone as if they were an important political player in a powerful member state and also ignoring that this is to some extent already the case. The "loss" of LMP is also more a loss of image for the new movement as this step may cost LMP more voters than the new movement. The head of the parliamentary faction and his deputy immediately resigned, calling the decision irresponsible and unrealistic both for the party and for the country. Their announcement was greeted with loud "hurray"-s and applause probably by the 77 who voted against the decision (97 voted for). The diplomatic formulation of the decision leaves a small opening to return but already called disappointing comments from some blogs and commenters on websites and also on Facebook.