Business Beyond the Reef

Budapest Police: No Wonder They Don't Move!

Ah, Hungary …   Bull’s Blood, the Gellert baths, hussars, bribery, paprika, St. Stephen, corruption, the Austro-Hungarian Empire, Chain Bridge, crime, Haydn …  It’s time to clean up your act, guys!

In an extraordinary undertaking, the Budapest embassies of nine major trading partners have jointly issued a press release condemning corruption in Hungary.  Extraordinary in at least two ways: countries don’t work together like this, and embassies never want to embarrass their host governments in public.  The level of corruption must be intolerable, or the embassies are working with a faction within Hungary that wishes to push an anti-corruption drive.  Or both.

The press release is titled “Joint Statement on Transparency“,  a euphemism.  Transparency is code for not being able to tell what is happening, with the implication that there is skulduggery behind the scenes.  I am not sure what deal was the action-forcing event, but it is clear from the press release that something underhanded has happened concerning major investments in transportation, utilities and broadcasting.  I know from experience and friends that there was considerable foul play in Hungary’s privatization of state-owned enterprises, and that the local mafia is strong.  The release makes the valid point that if things aren’t cleaned up, and quickly, investors will go elsewhere, putting Hungary’s already slow recovery in jeopardy.  The countries issuing the press release account for the majority of Hungary’s foreign direct investment: the United States, Belgium, France, Germany, Japan, Norway, Switzerland, the Netherlands and the United Kingdom.  Not to be ignored.

Old friend and colleague John Fogarasi felt compelled to lead an American Embassy effort for good corporate governance in Hungary more than a decade ago.  John has moved on, but it sounds like the campaign is getting into high gear again.

Budapest – I was expecting to see the ravages of the recession in this great city. My wife and I are traveling in central Europe and my next few posts will provide my observations along with views of friends and colleagues along the way. I had heard tales of an awful Hungarian economy plagued by Swiss franc mortgages whose payments in forint had skyrocketed. What I found was a vibrant city with well-stocked shops and plenty of visitors to those shops (what I couldn’t tell was how much they were spending). An old friend told me over drinks and dinner that the recession has been far tougher in the countryside than in the cities, as evidenced by the $15.7 billion bailout loan that Hungary was forced to take from the International Monetary Fund. The IMF has brought some tough austerity budgets to Hungary, implemented by what locals consider a professional government of bureaucrats that is temporarily in power. The previous regime was largely a replay of old-line communists, but there is some hope that the elections in 2010 will bring a more moderate coalition to power.

Houses of Parliament in Budapest

Corruption is a big issue, though perhaps less prevalent now than during the days when Hungary’s state-owned economy was being privatized. I heard horror stories of how state enterprises were sold at fire sale prices to favored friends of the government. There may be less corruption now simply because there is little left to privatize.

The political landscape is colored by the Roma issue. The Roma people, known to many wrongly as gypsies, make up perhaps 5-7% of Hungary’s population, but have a disproportionate impact on politics. Many politicians act on the assumption that Roma votes can be purchased at minimal cost (they are probably right about that), so there is tremendous attention given to Roma-oriented issues. Politicians are promising increased government services to the Roma, welfare payments, government subsidies – anything that will win votes in the near-term. That said, there seems little attention paid to longer-term programs that might really help the Roma out of poverty and into the mainstream of Hungarian life. Too much of the Roma coddling for votes consists of simply buying drinks out on the hustings.

Despite all this, Budapest is an exciting city – with some of the world’s best art deco architecture. Still, I saw many, many buildings in need of renovation. I fear this work will have to wait until the country pulls out of its recession, which is going to take a long while.

Next stop: Slovakia.