Money Is Power An Inside View of the IMF's Massive Global Influence
Part 6: 'The End of Begging'
Hungary has a long history of borrowing from the IMF, but in July negotiations over future credit lines fell apart in Budapest. The country's new prime minister, Viktor Orbán, slammed the door in the IMF's face and was celebrated for his actions. There was talk of a "struggle for economic freedom" and of the "end of begging." To understand what happened in Budapest, it helps to know that local elections were set to take place in Hungary three months later. That was all part of the game. The IMF is rich, powerful and far away, which makes it the ideal scapegoat. But that wasn't the only reason for the falling out.
Hungary has been an IMF member since 1982. The country embarked on economic reforms early on, and to do so it needed IMF loans -- to the tune of $520 million in the first year of its accession to the Fund. Hungary, a model student when it came to developing a market economy, relaxed its import policies in 1984. Subsidies were cut and the Hungarian forint was devalued, all at the request, urging or instruction of the IMF.
The country received six more loans by 1996, one for $365 million, another for $480 million, and in 1991 the Fund approved a loan worth $1.6 billion. In all those years, Hungary was reinventing itself. The banking system was restructured to satisfy free-market requirements, and a value-added tax was introduced. In 1990, the government passed laws to allow foreign investment, removed customs barriers, reduced government bureaucracy and lifted controls on prices and wages.
A Decline in Wages and Cuts in Pensions
But there was a dark side to the policies, even though they pleased Washington, attracted investors and were rewarded by the financial markets. The real wages of Hungarians -- those who even had a job -- declined by 22 percent between 1989 and 1996. When the Berlin Wall fell and the country opened up to global markets, Hungarian industrial production declined by more than a third, unemployment rose and inflation reached 30 percent. In other words, workers, retirees and the overwhelming majority of Hungarians had less in their pockets from one year to the next, they had to work longer for a pension that was smaller than expected, and when they became welfare cases, the state no longer felt responsible for them -- because the very nature of the state had changed.
Hungary's accession to the EU in 2004 brought a new round of so-called adjustments. And then came the global economic crisis. By 2008 Hungary was on the verge of default. To avert a disaster, the IMF, the World Bank and the EU joined forces to provide Budapest with $25 billion. The IMF, which put up $15.7 billion of the total, dictated the conditions: pension cuts and a freeze on civil servants' salaries. It was back to square one for Hungary.
Anyone who traveled through Hungary in the early 1990s witnessed a blossoming country with its capital, Budapest, transformed into a colorful, vibrant metropolis that was on the way to becoming a global city. Today, less than 20 years later, Budapest is a tired city of cracked, garbage-lined streets. It has become a gray city once again, a construction site in which most people have seen their quality of life decline.
In Budapest, Strauss-Kahn's new IMF still resembles the old IMF: inflexible, schematic and cold. Prime Minister Viktor Orbán, a conservative, broke off negotiations with the IMF over the question of new budget goals. Perhaps he planned the coup, and if he did, he certainly had good reason to do so.
Oddly enough, the value of the forint rose after the July altercation.
- Part 1: An Inside View of the IMF's Massive Global Influence
- Part 2: From Capitalist Mean Machine to Think Tank
- Part 3: Instant Flows of Cash
- Part 4: Shedding Its Image as the Headquarters of Hardcore Neoliberalism
- Part 5: Dropping 250 Billion over Europe
- Part 6: 'The End of Begging'
- Part 7: 'A Greek Bankruptcy Is Unavoidable'
- Part 8: Europe's Euro Challenge
- Part 9: 'Europe Must Reform Itself, That's Clear'