October 7, 2024

Hungary, Once a Star, Loses Its Shine

BUDAPEST — Zoltan Zsoter, an 80-year-old retiree, would seem to be about as far from the world of currency speculation that a person can get. Yet he is an example of how the workings of the global financial system, amplified by the policies of a single political leader, can have a devastating effect on ordinary people.

Mr. Zsoter is one of hundreds of thousands of Hungarians who took out home loans that must be repaid in Swiss francs or other foreign currencies like the euro. Such loans offered seductively low interest rates when times were good. But then the Hungarian currency plunged, causing Mr. Zsoter’s monthly payment to almost double.

“I live day to day,” Mr. Zsoter said. After defaulting on his loan, he pays 40,000 forints out of his monthly pension of 51,000 forints, or about $210, to stay in his modest Budapest apartment as a renter. “Sometimes I have to choose between buying either food or medicine,” he said.

Hungary serves as a cautionary tale for those who argue that Greece could regain competitiveness by reintroducing its currency. The drachma would plunge against the euro, the theory goes, and allow Greek products to compete on price with countries like Turkey.

“Whatever you win today, it shoots you back tomorrow,” said Radovan Jelasity, chief of the Hungarian unit of Erste Bank, an Austrian institution.

Viktor Orban, the embattled Hungarian prime minister, did not create the problem with foreign currency loans, which is also an issue in other East European countries like Poland.

But many critics regard Mr. Orban as a would-be strongman whose erratic, heavy-handed policies have made Hungary’s economic problems far worse by scaring off foreign investors, prompting credit rating agencies to downgrade government bonds to junk and leading to an even further drop in the forint.

In theory, the plunge of the currency should help the economy by making Hungarian products less expensive abroad and cutting the cost of labor relative to neighboring countries.

But economists and business people say the advantages of a weak currency are more than canceled out by negative factors, like soaring prices for imported fuel or imported components for Hungarian factories, not to mention higher payments on foreign currency loans.

Peter Oszko, who was finance minister in the caretaker government that preceded the election of Mr. Orban in 2010, pointed out that the Hungarian economy was by many measures in reasonably good shape. It has a trade surplus and its debt, equal to 81 percent of gross domestic product, is in line with the European Union average, though high for a developing country.

But the economic climate is grim, with 10.7 percent unemployment and inflation of 4.3 percent even as the economy heads into recession. Hungary is highly susceptible to the economic problems in Western Europe, where most exports go.

To some critics, the biggest problem with the Hungarian economy is Mr. Orban himself. “The fundamental numbers are good,” said Mr. Oszko, who now runs a venture capital fund. “If the government decided to become more credible and predictable, it would help a lot.”

Backed by a two-thirds majority in Parliament, Mr. Orban has passed a flurry of laws that have concentrated power in his hands, weakened competing institutions like the central bank and alienated international lenders as well as an increasing number of Hungarians.

One law nationalized private pensions in order to make the budget deficit look better. Such actions last week prompted the European Commission to threaten to take legal action against Hungary, a move many Hungarians regarded as long overdue.

Mr. Orban also faces pressure from the International Monetary Fund, which may be Hungary’s only hope to avoid defaulting on its national debt, much of which is also denominated in euros.

Faced with rising borrowing costs, the country could run out of money by May or sooner if bond investors become more skeptical. Yields on longer-term Hungarian bonds rose above 10 percent this month, a rate that bodes ill for the government as it seeks to sell more than $1 billion in debt through April, a large sum for a country of 10 million people.

Following a visit to Washington last week by Tamas Fellegi, a Hungarian minister, Christine Lagarde, the I.M.F. managing director, made it clear she wanted to see action and not promises.

Article source: http://www.nytimes.com/2012/01/17/business/global/17iht-hungary17.html?partner=rss&emc=rss

Poland’s Economy Refuses to Follow Its Neighbors

WARSAW — Does Poland have the last healthy economy in Europe?

With robust economic growth, rising foreign investment and a new Daniel Libeskind luxury high-rise redefining the Warsaw skyline, it certainly feels like a different world from most of its neighbors, beset by the debt crisis and recession fears.

Not being in the euro zone turns out to have been a blessing for Poland — and a lesson in how a national currency can help a country absorb international shocks. But business executives and government leaders are rightly nervous about how long this country of 38 million, the only one in the European Union to avoid recession in 2009, can again escape the euro area’s pain.

“Poland remains an island,” said Lucyna Stanczak, country director for the European Bank for Reconstruction and Development. “The question is, Is it going to remain this way? The slowdown in Western Europe will affect Poland one way or another.”

In fact, trouble is already spilling over the border.

Many of Poland’s banks are expected to change hands, as their West European parent companies, like Commerzbank of Germany, struggle to raise cash. The country’s main stock index is down 24 percent since April, as international investors reflexively lump Poland into the same category as ailing East European countries like Hungary or Romania. While there is officially no credit crunch in Poland, small business loans are increasingly hard to come by.

“Small companies are not getting financing unless they have a 10-year history and a factory,” said Anna Katarzyna Nietyksza, president of Eficom, a Warsaw consulting firm that provides advice to companies on how to apply for European Union funds or list on the Warsaw Stock Exchange. “If you don’t have collateral, something concrete, you don’t get financing.”

Although Poland remains staunchly pro-European, there have been stirrings of discontent, particularly in the main opposition Law and Justice party led by Jaroslaw Kaczynski, the former prime minister. A rally against closer European integration led by Mr. Kaczynski drew about 3,000 people to the streets of Warsaw on Tuesday, according to a police estimate cited by The Associated Press.

For now, though, Warsaw feels like one of the few boomtowns left in the European Union. Leveled in World War II and rebuilt with a heavy hand by the Communists, the city is in the midst of a big expansion.

New ring roads, mass transit and bridges may eventually relieve the chronic traffic jams. An undulating 54-story apartment complex designed by Mr. Libeskind, who is based in New York but was born in Poland, will finally offer a challenge to the Palace of Culture and Science, built by the Russians as a monument to Joseph Stalin, for supremacy on the Warsaw skyline.

Piotr Czarnecki, chief executive of the Polish operation of Raiffeisen International, an Austrian bank, complains that his daily commute, which should take 20 minutes, often takes an hour and a half because of the city’s jammed roads.

“I was born in Warsaw, my whole family comes from Warsaw for many generations,” he said. “I have never seen such a tremendous scale of investment.”

There are other signs of emerging wealth. The city has a Gucci outlet and a Ferrari dealership, the latter occupying part of a building that was once headquarters of the Polish Communist party. Next door to the Ferrari showroom, the Warsaw Stock Exchange was host to 38 new listings in the three months through September. As a result, Poland ranked behind China and ahead of the United States in the number of initial public offerings during the third quarter, according to a tally by the consulting firm Ernst Young.

Measured by the amount of capital raised, Poland ranked fourth with $2 billion, behind the United States but well ahead of Britain or Germany.

Poland is expected to grow 2.5 percent in 2012, according to the Organization for Economic Cooperation and Development. That is a marked slowdown from more than 4 percent in 2011, but still vibrant compared with Western Europe, which is heading toward recession.

Poland even outshines much of Western Europe in terms of political stability. In October, Poles re-elected a government led by Prime Minister Donald Tusk. It was the first time since the fall of the Iron Curtain that Poles had given a government a second consecutive term, and it contrasts with Western Europe, where turmoil related to the debt crisis has led to the removal of leaders in several countries.

Officially, Poland is still moving toward adopting the euro. In fact, membership is mandatory under the terms of the agreement that allowed Poland to join the Union in year 2004.

Article source: http://www.nytimes.com/2011/12/15/business/global/15iht-poland15.html?partner=rss&emc=rss