Stay home and count your money

It’s nothing to be proud of when a national currency goes down in value. The government isn’t exactly broadcasting it but they aren’t making any secret that a weak forint is quite convenient for them.

The most recent statistics provided by the Hungarian National Bank (MNB) are sobering: in the past year the average exchange rate with the euro was HUF 297, in comparison to slightly more than HUF 250 in the crisis year 2008 or an average of HUF 275 when the Orbán government was enthroned four years ago.
The “Hungary is performing better’” campaign slogan of Fidesz certainly can’t refer to the forint, which has lost 8% of its value against the euro in the past four years. This might even seem respectable next to the 20% the forint has lost to the Swiss franc over the same period. (The average exchange rate shot up from HUF 200/CHF in 2010 to HUF 241/CHF last year.)
It is well known that Hungarian households and businesses are still considerably indebted in foreign currencies. Recently they were able to dispose some of their “bad” loans via a low interest rate growth credit from the MNB. The state has also consolidated municipalities but despite all the efforts the forex debt has hardly budged: even if Prime Minister Viktor Orbán has declared this battle to be one of his top priorities, at around 80% of GDP it will still be a long time before he can declare victory.
This limits his freedom of action however, because even as the competitiveness of exporters is improved by the weak domestic currency, at the same time this puts in danger all those who have indebted themselves in foreign currency – most notably the state itself.
At the time of their entry into the European Union in 2004 the currencies of Eastern Europe were expected to enjoy a heyday. The deepening Euro-Atlantic integration was supposed to attract foreign capital and increase confidence in their markets, which were believed capable of catching up in terms of labour productivity over the course of their expected rapid modernisation. But the political elite of Hungary is not interested in a strong forint.
From 2001 the forint oscillated in a band of 30%; the Medgyessy government soon depreciated it and the new centre was set at HUF 282/EUR. Paradoxically even the speculators did not believe the Socialists capable of such mismanagement: due to the imminent entry of Hungary into the EU the forint rose to a record high of 240 to the euro.
As the fiasco became obvious and the euro was pushed into the distant future, the MNB managed to get by with massive increases in interest rates, in order to keep hot money in the country. Since from 2004 Hungary’s economy was increasingly integrated within Community structures, further capital and immense subsidies continued to flow and even the inactive four-year government of Ferenc Gyurcsány could not really shake the forint.
Immediately before the world financial crisis of 2008 it remained almost as strong as in 2005 at HUF 251/EUR. The EU/International Monetary Fund bail-out let many illusions die: in 2009 the exchange rate rose to HUF 281 per euro, which was welcomed by the second Orbán government that came into office the next year.
This year his team will perhaps easily outstrip an average exchange rate of HUF 300/EUR. With a forint beyond 320 an MNB intervention will no longer be able to stop it, experts say. Particularly as foreign investors, who hold HUF 5,000 billion in government bonds, bring in only 100 more basis points of yield in Hungary compared to elsewhere in the region.