Hungary vs. the IMF (a battle of finances and politics)

[peamasii.livejournal.com]

Since Stratfor got hacked last week by Brazillian hackers who demanded that the site be totally open to non-subscribers, they've opened up the whole site to non-subscribers. I'm reading in today's article that Hungary is making quite the stand against the IMF austerity measures meant to reduce risk in over-leveraged countries. This is particularly painful to Hungary because even though they run a large debt-to-GDP ratio, their finance sector is 80% owned by foreign banks. The recently elected Fidesz party (who won over the socialists and their disastrous spending) has placed a new constitution which among other things extends the public functions for judicial and police personnel up to 12 years, while many other public functions and discretionary spending has been cut. Also they've altered the EU-imposed rules that guarantee the central bank autonomy from the state. Orban's party effectively will nationalize the Magyar National Bank to protect it from currency and leveraging risks which are seen as the reason for the current debt crisis. In response the Central EU powers have been screaming bloody murder and the IMF is promising to block further loans to Hungary until they reverse course.

What do you think about this method of state control over the central bank in order to prevent financial crises? Should the state become involved in limiting the power of foreign capital (which has become destructive in places like Greece, Portugal, etc.) or should they at least be able to place limits on how much ownership of a sector can be in foreign hands? Do you think a relatively small country like Hungary (or Greece for that matter) can stand up to the demands of the IMF?

http://www.stratfor.com/analysis/hungarys-rhetoric-clashes-economic-reality

Comments

[gunslnger.livejournal.com]

Do you think a relatively small country like Hungary (or Greece for that matter) can stand up to the demands of the IMF?

Since the IMF is backed by the full power of the Illuminati, probably not.

[mahnmut.livejournal.com]

We the People are more powerful than the Illuminati! Just stand up and say 'No'!

[gunslnger.livejournal.com]

Ni!

[mikeyxw.livejournal.com]

"Do you think a relatively small country like Hungary (or Greece for that matter) can stand up to the demands of the IMF?"

Sure, all they need to do is to run a budget surplus or borrow from private markets, like most countries do, and then they can tell the IMF to go pound sand. It's only the countries who need to borrow money because they're running a deficit and who have proven themselves risky who need to worry about what the IMF thinks. Those who borrow from private markets need to worry about Moodys and the like.

I'm also having trouble with figuring out how foreign capital caused problems for Greece and Portugal. Their acute problem is a lack of foreign capital to pay their bills. Their long term problem is that their government spends more than they collect plus what they can borrow.

[peamasii.livejournal.com]

Right, well that is the unfortunate situation of Hungary and Greece, they cannot run a budget surplus because the debt is too large at this point. Borrowing from private markets is also too expensive because the risk is seen as too high at this point, which causes the interest rates to be too high. What Orban's government in Hungary has done is to devalue the forint currency by 20% in the last year, that way they can sort of compensate with higher export profits and so on. However this exacerbates the debt interest in foreign currency, which affects even individual borrowers (remember that their lending sector is foreign-dominated).

For Greece the problems were partly caused by the large influx of foreign capital in the banking sector over the last decade, as Goldman Sachs and other market players flooded their small market with capital, the Greek banks over-expanded and over-lent into the neighbouring countries. Remember that Greece's ambition was to become THE banking empire for South/East Europe. Portugal has more of an internal deficit issue, it's not quite as acute as Greece's. And Hungary's problem is not just that the government spends too much, they have structural economic problems which has caused private debt to be unsustainable and the current conditions are pushing them to insolvency. Which is why the current government is trying to take a new line, rejecting the euro conditions, pissing off the IMF, etc. I'm not sure how far they will get before they just lose population support. People are scared and when they get scared they refuse to cooperate politically anymore.

[mikeyxw.livejournal.com]

I still don't agree with what you're saying about Greece. They are in trouble because they have a massive and inefficient public sector and a private one that is not all that competitive either. Ireland is a great example of a country where the banking sector led them into bankruptcy, Greece is not.

People were willing to lend to Greece too cheaply, but this didn't cause the problem. Greece is not an 18 year old college kid getting too many credit card applications. They have a finance minister, a treasury, and a central bank with 3,000 employees. They doubled the number of public sector employees in the past few decades while barely increasing their population. Throw in a tax evasion rate of about 30% and you've got your problem.

[peamasii.livejournal.com]

I'm not disagreeing with you, but I think it's a combination of causes and not just the bloated public sector. Almost all EU countries have bloated public sectors, and the largest ones are not even the ones in trouble. It's a similar problem in Hungary, there are almost 1 million employees who basically do nothing susbstantial, since any profitable industry has already been privatised. The Orban government has promised creating another million jobs! LOL.