Viktor Orban took a gamble when he cold-shouldered the IMF, but his combative style seems to be paying off in strong public support for his center-right government ahead of a local vote in October. His decision to snub the Fund, saying Hungary's economy is strong enough to finance itself from the markets, has gone down well with Hungarians, worn out by years of austerity. And it appeals to national pride in the country of 10 million people. So there are short-term political benefits for the ruling Fidesz party, cementing its public support ahead of a municipal election on Oct. 3. But the lack of a safety cushion from international lenders poses a serious risk if global investor sentiment turns sour. Prime Minister Viktor Orban, 47, who led Fidesz to victory at April's national elections and has an unprecedented majority of more than two-thirds in parliament now, seems to be prepared to take the risk. And most Hungarians, frustrated by the belt-tightening measures of recent years under the Socialists, like Orban's assertive and sometimes brash style. “It was the right thing to do, to kick out those people. We can pay back our debt without someone with his hand in our pockets the whole time,” said Oszkar Kelen, 67, a retired railway worker in Budapest. “Orban? Finally someone who doesn't lay down to every demand the bankers have. This country will come to nothing if others make our decisions for us,” added Ilona Veres, 40. Orban confounded stability-loving investors last week when he unexpectedly announced Hungary would no longer negotiate with the International Monetary Fund and would only talk to the European Union about its 2011 budget plans. Hungary's talks with its lenders and a review of the country's financing deal were suspended on July 17. “Orban is not by nature a politician who compromises. Rather, when challenged, his past behavior suggests he is more likely to escalate the situation than back down,” said Mark Pittaway, senior lecturer in European studies at the Open University in Britain. “His behavior over the past week is in line with this pattern. The major short-term risk is of a confrontation between Brussels and the IMF on the one hand, and Orban on the other, which rapidly escalates, and leaves the Hungarian population and the economy caught in the middle.” The latest opinion poll by think tank Szazadveg Institute, conducted last week, showed support for Fidesz among decided voters was at 64 percent, four times higher than for the main opposition Socialists at 16 percent. Orban, who last headed a government from 1998 to 2002 when the economy was in an upswing, this time inherited an economy clambering out of a deep recession last year. Domestic demand is still weak after the Socialists' spending cuts and the engine of a fragile recovery is an export sector dependent on how the European recovery shapes up. Fidesz swept into power promising tax cuts and jobs and is determined to go ahead with its growth stimulus plan, hoping that it will put Hungary on a path of sustainable growth. Orban, who has picked a fight with banks by imposing a hefty tax on the financial sector to plug budget holes, wants to widen his fiscal room for maneuvre next year. He wants a “uniform European agreement” that would give all countries under the EU's Excessive Deficit Procedure the same timeframe to cut their deficits to the required 3 percent level. That way Hungary, which has been in the EU's sin bin since 2004 and is supposed to cut its budget gap below 3 percent in 2011, would win precious time. Although the market fallout from the breakdown of talks with lenders has been contained so far, the forint could weaken and Hungary's funding costs could rise sharply if rating agencies act on their warning and downgrade the country's debt. In that case Orban's plan could easily backfire. “If there's an external shock and it turns out that Hungary is not able to finance itself from the markets, this would also mean a fiasco for the government which would need to ask for a new loan package,” said Peter Kreko, analyst at think tank Political Capital. “It appears that the government is willing to sacrifice rationalistic ideas for some symbolic measures.” Hundreds of thousands of Hungarian households who hold Swiss franc mortgages, are watching the forint closely, fearing they may not be able to pay their loans if the forint slides.
