The position of Fidesz - Hungarian Civic Union on the real causes of the recent Hungarian currency turmoil

Dátum: 2003-12-10 09:45:00, eredeti URL: http://archiv.fidesz.hu/index.php?Cikk=18180
KCMDB-be feltöltve: 2024-05-04 19:17:40.188830, Feltöltő: fidesz_hu_scraper_v2

Even though the Hungarian National Bank raised interest rates by 300bp on 28 November, the forint continued to slide significantly during the first week of December. This was an unequivocal indication about foreign investors expecting to see a more determined cabinet stand by and a real commitment to cut next year's budget deficit to 3,8 percent of the GDP, a target figure strongly questioned in the light of the recently approved key figures of the budget.

Investors were confused as the Medgyessy-government had been communicating for over a year on the forint being overvalued. The apparent intention behind this reasoning was to cheapen Hungary's assets and labour force. The cabinet's intention to depreciate the forint had been too obvious and clear for the market players to believe in late 2003 that this time the government had in fact changed its mind and intends to move in the opposite direction.

The Medgyessy-government's commitment to reduce inflation also seems insincere. On the contrary, a last-minute move to increase budget expenditures by HUF 50 billion indicates that the government wishes to keep on pursuing a lax fiscal policy and pushes the country irresponsibly towards an ever increasing indebtedness. This assumption was reinforced by the inconsiderate declarations of finance minister Csaba László in London at his lunch with Citigroup representatives which hinted at keeping inflation targets not being a priority for the government. This lunch turned out to have cost approximately HUF 100 billion to Hungarian taxpayers.

In the wake of the dramatic fall in the exchange rate following the finance minister's statement, market players expected the Hungarian government to send a message to investors by announcing an amendment in the key figures of next year's budget. Some trend-setting media even hinted at a positive market reaction to a potential dismissal of the finance minister. But the government failed to react to the message, which implies a further erosion in the credibility of the cabinet's economic policy and growing uncertainty about a possible continuation of the Hungarian currency turmoil.

Budapest, 8 December 2003