The painful economic admissions and decisions of Hungary’s prime minister Ferenc Gyurscany during his annus horribilis in 2006 pushed his political career to the brink, but investors told Emerging Markets yesterday why they welcomed his survival.
“I am certainly not alone in believing that the reconstruction of the Hungarian economy will be completed in the next two years,” said Herbert Stepic, chief executive of Raiffeisen International, which has had a presence in Hungary for 20 years. With regard to the economic impact of the political events late last year, Stepic told Emerging Markets: “It’s business as usual as far as we’re concerned. there’s been no impact on our profitability or growth trajectory in Hungary.”
He added: “There’s been no negative effect on either interest rates or the exchange rate — normally the first sign you’d expect to see of an economy in crisis is the weakening of the currency, but in fact we’ve seen the exact opposite in recent months, with the forint continuing to strengthen.”
Juliet Sampson, HSBC’s chief economist for emerging Europe, was equally upbeat in her assessment of the achievements of Gyurscany’s coalition cabinet, which has been forced to introduce the first austerity package in Hungary since the mid-1990s.
“The government has done everything that they said they would do, and more,” says Sampson, adding: “As far as restoring credibility goes, they have done very well, targets have not just been met, but exceeded.”
Commenting on the government’s efforts at trimming the country’s bulging budget deficit, which came in at 9.2% at the end of 2006, Sampson said: “If the government had not put the appropriate reforms in place, it would have been 13%.”
Looking ahead, Sampson is focusing on whether momentum can be maintained, or if reform fatigue will set in among politicians and the public alike.
For his part, combative Gyurscany has told Emerging Markets he is confident that there is still sufficient political will among his Hungarian Socialist Party and its coalition partner, the Alliance of Free Democrats, to push ahead with the reforms in the face of fierce opposition from the Hungarian right.
“With the failure of the reforms, the country would lose,” said Gyurscany, adding: “The coalition parties know this, so that is why they will agree about the next phase of the reforms.”
Given the recovery of his fortunes alongside those of Hungarian government finances, HSBC’s Sampson observed that the economic outlook is now largely dependent on external rather than internal events.
“The biggest market risk is an exogenous shock such as a fall in global liquidity.”