Bloomberg News

Hungarian Students Stronger Than IMF in Pressuring Orban

December 20, 2012

Hungary Students Prove Stronger Than IMF in Forcing Orban Hand

Now, Hungarian Premier Viktor Orban, 49, has stumbled against unlikely opponents: teenagers and university students, who have taken to the streets by the thousands in the past two weeks to protest cuts in state scholarships at universities. Photographer: Attila Kisbenedek/Getty Images

He led a self-styled economic freedom fight against the International Monetary Fund, steamrolled over parliamentary opposition to achieve the biggest consolidation of power since communism and levied the highest bank tax in Europe.

Now, Hungarian Premier Viktor Orban, 49, has stumbled against unlikely opponents: teenagers and university students, who have taken to the streets by the thousands in the past two weeks to protest cuts in state scholarships at universities. Orban relented yesterday, pledging not to reduce government aid.

“We won a battle,” Mate Abraham, 17, one of the student leaders, said yesterday at a protest drawing hundreds to the foot of Budapest’s iconic Chain Bridge, spanning the Danube.

Orban’s about-face failed to stop demonstrations, which continued into the night as students occupied Chain Bridge, blocking traffic. They demanded written commitments from the government and further concessions, including scrapping a rule conditioning free university education to graduates staying and working in Hungary as well as guarantees that free tuition would also be available for law and business majors.

Protests threatened to grow as teachers, doctors and artists joined students this week to oppose financing cuts. Orban, elected with an unprecedented two-thirds parliamentary majority in 2010, is under pressure from the European Union to keep Hungary’s budget deficit at less than 3 percent of economic output. That level would help him avoid cuts in EU aid, needed at a time when the economy is mired in its second recession in four years.

‘Political Threat’

“The government hasn’t faced this kind of political threat before and it became frightened and backed down as demonstrations threatened to snowball,” said Peter Kreko of Political Capital institute, a Budapest-based research institute. “The government can’t win a fight against students like it can against the IMF.”

The protests were rich in irony. Orban gained attention in the 1980s as a university student leader calling for the withdrawal of Soviet troops in 1989. He founded the Fidesz party, which grew out of the anti-communist student movement, and became the country’s youngest premier in 1998.

More recently, as an opposition leader in 2008, Orban organized a successful referendum against the introduction of university tuition fees, accelerating the downfall of the government and preparing his own ascendance to power two years later. He promised to end years of austerity and to boost growth.

Opposition Protests

Using his parliamentary majority, he passed a new constitution over opposition protests and ousted the heads of independent institutions, including the Supreme Court. He also nationalized private pension funds, expanded the state’s influence over the economy and boosted taxes on banking, energy, retail and telecommunication companies to finance tax cuts for higher-income earners -- against IMF recommendations.

In the process, the government managed to cow powerful interests. Officials from six foreign-owned companies interviewed by Bloomberg News for a July 25 article on the plunge of foreign investment declined to comment on the record, citing concern that criticizing the government might damage their business interests.

That hasn’t stopped bond investors, looking for higher yields amid a flush of liquidity, from buying Hungarian assets. Hungary’s local-currency bonds have returned 36 percent this year in dollar terms, the most worldwide after Greek and Portuguese debt, according to Bloomberg/EFFAS indexes.

Record Holdings

Non-residents increased their holdings to a record 5 trillion forint ($23 billion) on Dec. 14, according to state data, boosting Orban’s ability to finance the budget without IMF restrictions.

The two weeks it took for Orban to partially capitulate on education contrast with the seven months’ delay before he amended a central bank law that the IMF and the EU said undermined the bank’s independence and which was blocking the country’s talks on a credit line. Orban turned to the IMF last year after the forint plunged and the country’s credit grade was cut to junk.

Aid talks are still deadlocked, more than a year after the government asked for help. In October, the government plastered Budapest with anti-IMF billboards and television and newspaper advertisements, saying it “won’t give in to the IMF.”

Rallying Point?

Orban’s overhaul of the judiciary, electoral laws and independent institutions sparked previous demonstrations that then fizzled. Student protests are different because they threatened to become a rallying point for anti-government anger and to dent its popularity, said political analyst Krekko.

The student protests are “part of democracy,” government spokesman Andras Giro-Szasz told reporters yesterday in Budapest.

Fidesz had 19 percent backing among eligible voters, compared with 16 percent for the Socialists in November, according to a poll on the Ipsos company’s website. In January, Fidesz led the Socialists 16 percent to 11 percent, the Ipsos poll showed, without indicating a margin of error. Fidesz had 42 percent backing in May 2010, Ipsos data shows.

The government’s shifts on education issues and previous broken pledges are reason for students to stay mobilized, Bence Toth, an 18-year-old high-school student, said yesterday. The cabinet has delayed a promised pay increase for teachers and has backtracked on a pledge to reduce a special bank tax by half from 2013.

“The government has hurt the interests of big companies, of banks, and now students,” Toth said at the protest. “You can’t pick fights with everybody all the time or else people will start to rebel after a certain time.”

To contact the reporter on this story: Zoltan Simon in Budapest at zsimon@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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