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The price of the IMF loan

April 30th, 2012

Now that the European Commission have given the green light for Hungary to start negotiating a credit-line agreement with the IMF, commentators assess the possible consequences of the restrictions announced by PM Viktor Orbán. Both left and right agree that the talks are a step forward, but the country could pay a very high price for the credit-line.

Amid immense pressure from both the left-wing opposition and international actors, the government stood its ground and thus managed to broker a deal, comments Szabolcs Szerető in Magyar Nemzet, on the agreement with the European Commission. The pro-government columnist believes that the Hungarian government has managed to defend the country’s sovereignty by promising to cut the deficit through further restrictions (see BudaPost April 26, 2012). It is, however, still unclear what additional measures the IMF will require during the talks in return for the credit-line, Szerető warns.

We have not yet won the war, or even a battle, Magyar Hírlap cautions in an editorial. The right-wing daily suggests investors used the EU to pressure the Hungarian government into respecting their financial interests. According to the daily, the EU was not really interested in the laws it criticised, but rather wanted to compel the Hungarian government to abolish the surplus taxes levied for the past 18 months on international telecom companies, the energy sector and foreign retail chains.

The real horse-trading will only start once the IMF negotiations kick in, Magyar Hírlap warns. And if the IMF cannot make the government accept its conditions, the EU will no doubt jump up once again to claim that the Hungarian government is violating basic principles of democracy, the daily notes bitterly.

Hungary may pay a very high price for the IMF credit-line, editor-in-chief Gábor Borókai writes in Heti Válasz. He also remarks that the harsh criticism emanating from the EU was the result of the Orbán government’s policies, which significantly increased the taxes paid by foreign companies in Hungary. Borókai does not doubt that the IMF agreement could help the country to get loans at cheaper interest rates, but he fears that the deal   will also entail costly concessions to foreign companies in return.

In the same weekly, conservative economist Péter Ákos Bod argues against one of the major measures of the new austerity package announced by PM Orbán (see BudaPost April 25, 2012) – a surplus tax to be levied on financial transactions, as well as against   another idea under consideration in government circles – a five key VAT. Bod fears that both go against the principle of a common European market, and could in the long run harm Hungarian interests. As he points out in another piece published on Komment.hu, the new tax hikes can slow down the economy. If the tax burden increases, investors will turn away from the country, and Hungary’s competitiveness will weaken, Bod remarks. The conservative economist hints that a better way of improving the Hungarian economy would be the abolition of the flat income tax – which the government has so far resisted for fear that such a move would amount to the admission of complete failure.

In Magyar Narancs, economist Balázs Váradi contends that the planned surplus tax on financial transactions will not only increase the burdens of Hungarians, but will have other negative side effects. Váradi points out that in the aftermath of the introduction of such taxes in Latin American countries, the volume of cash transactions increased and large international companies took their bank accounts outside the countries to circumvent the surplus tax. As a result, tax revenues were significantly lower than expected by the governments, Váradi points out.

Economists interviewed by Népszabadság were also sceptical about the use of the new austerity measures. They all deplored the fact that instead of cuts in spending and structural reforms, the Orbán government is trying to increase the revenues. On the positive side, they acknowledge that the government has now publicly admitted that the economic growth in the next years will be lower than initially hoped.

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