„It would not be good if people’s foreign currency denominated indebtedness jumped. First, foreign currency denominated loans carry higher risks and are associated with higher costs, which is not reflected in lower interest rates. In case of these loans one needs to take into account the risk of variation in interest rates, and also the risk of a fluctuating exchange rate. For instance the devaluation of the Hungarian forint by 10% may typically increase the loan instalments by 5-6%. Secondly it is not our aim to aid the growth of foreign currency denominated debt, as this may risk the financing of the operation of the country” – wrote Ferenc Gyurcsány in December 2005 in a blog post on the government’s official site (https://kapcsolat.magyarorszag.hu/forum/posts/list/285/336.page#65624) when discussing why he was worried about the growth in foreign currency denominated indebtedness. The then prime minister responded in this form to a letter from an economist who suggested that the amounts (loans) used for the state housing support policy – which placed a heavy burden on the national budget – should be converted to foreign currency denominated loans. Not only the former prime minister but the Hungarian National Bank (MNB), the Hungarian Financial Supervisory Authority (PSZÁF), various international financial institutions, including the International Monetary Fund (IMF), were calculating with the fact that the growth of foreign currency denominated loans, which started between 2003 and 2004, and then peaked just one year shy of the global financial crisis in 2009, carried enormous amounts of risks for both the public and the country as well. By October 2008 the country’s foreign currency exposure reached 14,000 billion HUF, of which more than 5,000 billion HUF was owed by households.
„Many, many things are being purchased with loans and, in some cases, with foreign currency denominated loans, which is a risky thing to do as the foreign currency loan is pegged to the Hungarian Forint, and if our currency is strong, then it is easier to pay the instalments, but if our currency weakens, then the monthly instalment may grow by 8-10,000 HUF. This is true for properties but now for consumer goods as well. We are heavily in debt, but this was the decision of the Hungarian people and this should not be an issue for the government to manage. This comes from a sort of life strategy choice of Hungarian families (to become indebted as implied)” – said Viktor Orbán in an early news program on the Hungarian Television in April 2006.
The president of Fidesz, then in opposition, also saw the risks involved but still didn’t think that the coalition government of the Socialists and the Liberal Democrats had any responsibility in the situation. Following the global financial crisis and of their re-election, Fidesz now thinks the opposite: the party which introduced the fixed exchange rate based debt pay-off scheme to the parliament, established a parliamentary sub-committee to investigate who was responsible for the growth of foreign currency denominated indebtedness. This committee – which is not an economic committee and does not contain any economists – was created alongside the constitutional committee which is working on legal issues and is led by Ferenc Papcsák. The members of MSZP look at this as if Fidesz prepared for a legal challenge, even though it did not think that Gyurcsány’s government is in any way responsible 5 years ago.
Last Updated on Friday, 30 August 2013 09:11