Country Report 2010: No Time to Lose

Hungary’s overall Political Risk Index (PRI) score for 2010 remains low at 66 points, improving over last year’s score of 64, according to Figyelő and Political Capital’s new country report. Meanwhile, Hungary’s EcoRisk ranking has slipped into “high risk” territory for the first time since 2000.

Political Risk Index (PRI)

Hungary’s political risk level has declined for the first time in five years, but the details reveal little cause for celebration. Risks related to corruption and prejudice remain persistently high, and, for the first time, risks to press freedom are on the rise. The main reason behind the decline in overall political risk is the surge in government stability that followed the Fidesz party’s overwhelming victory in the April 2010 elections. Yet this will only last as long as Prime Minister Viktor Orbán’s administration keeps strict budgetary policy and handles its power to amend Hungary’s Constitution responsibly. Corruption and prejudice continue to pose a high risk, while new risks to press freedom have emerged thanks to a high concentration of private news organizations with ties to Fidesz. The possibility that Fidesz will make haphazard changes to criminal law raises risk levels in the “rule of law” category. Also, Fidesz’s pledge to seek out and punish members of the previous Socialist administration in connection with corruption merits particularly close scrutiny; the so-called process of elszámoltatás (“calling to account”) may pose risks to the independence of investigators and the judiciary. In terms of the state’s role in the economy, the biggest risk is that Fidesz politicians will try to implement some of the populist policies they espoused while in opposition.

While in the subsequent quarters of 2009 the economic risk decreased at a steady rate, in the last quarter the index fell short of the 2008 average as well. With this, for the first time in the 2000s, the average EcoRisk index slipped into the higher-risk range. Of all components, the deep recession has plunged the growth index to an all-time low; the average score corresponds to the critically low economic growth index. However, in the region as a whole, where the Hungarian economy had lagged behind through the middle of 2008, the gap between growth indexes has narrowed considerably. And this year the performance of the Hungarian economy has come to match the regional average. The financial/money market risk index has produced major shifts during the crisis, and we strongly believe the worst is already behind us. A sense of calm returned in the second half of 2009; the sustained rally of equity markets and the return of global growth reduced risks affecting the real economy and the capital markets. By the end of the year the index receded into the medium-risk category. The stability sub-index entered the high-risk range already in 2002 and essentially has remained there over the past seven years. However, in 2009 Hungary's stability risk returned to the medium-risk range. Starting with the end of 2008 pressure from global money markets and international intuitions (effective in the wake of the currency crisis) managed to impose a painful discipline not only on public finances but, with the mediation of the banking system, also on the saving/borrowing habits of the population. In respect to labour-market risks, following stagnation in the past few years, the sub-index has deteriorated significantly, and in all likelihood the index will continue to fall throughout 2010, due primarily to the delayed effects of the crisis on the labour market. Looking at the East- Central-European region as a whole, during the crisis labour-market trends in Hungary have not been all that alarming; the rate of job losses has not exceeded the regional average.

The economic weekly Figyelő and Political Capital publish their indicators monitoring political and economic risks for the sixth year in a row. In the case of indicators arranged along a 100-point scale a lower value indicates higher risk.