Hungary, Turkiye and Serbia – eerie similarities

By Miša Brkić

“Turkiye had the highest inflation rate in June – 38.3 percent, followed by Hungary – 19.9 and Serbia – 13.5 percent. Considering the increase in food prices in June, inflation in Turkey was 54.3 percent, in Hungary – 28.4 percent, and in Serbia – 24 percent. The data was published by Eurostat based on the harmonized index of consumer prices.

 Turkiye, Hungary, Serbia… Why do these countries have the highest inflation? In which way do they differ from other countries? What else, apart from high inflation, could be their common denominator?

High inflation is an indicator of a sick economy.

June was the eighth consecutive month that saw price increases in Turkiye, while inflation continues to devastate the citizens’ living standard. Retailers are now displaying prices in US dollars, while citizens are buying gold and cryptocurrencies to preserve their savings.

In previous years, the economic program of President Recep Tayyip Erdogan prioritized economic growth, which in 2021, was robust (11 percent) thanks to the post-pandemic opening.

But, in 2022, it dropped to 5.6 percent, and a 2.8 percent economic growth is projected for this year due to the fall in industrial production. Erdogan has pushed for a low cost of capital to spur economic growth.

He spent billions of dollars on grandiose government investments. He also forced the Central Bank to lower the benchmark interest rate from 19 to 8.5 percent.

The prices of public transport, food products, cigarettes and services continued to rise, so inflation (84 percent last August) reached the highest level in 24 years.

Under the pressure of one of the largest current account deficits (six percent of the national GDP), the national currency, the Lira, lost 44 percent of its value against the dollar.

To defend the Lira, the authorities spent $67 billion of foreign currency reserves. The economic crisis and the way it was managed pushed many foreign companies to leave the country.

Foreign ownership of Turkish government bonds fell from 25 percent (in May 2013) to under one percent (in May 2023), and foreign investors withdrew more than seven billion dollars from the Turkish stock market.

President Erdoğan blames the West, security risks, LGBT groups and cultural threats as the culprits for the economic crisis. But complaints also come about Erdogan’s way of managing the country and the economy.

Hungary is currently experiencing the worst economic crisis.

Prime Minister Viktor Orbán and his government are faced with rising energy costs, inflation, the incredibly weak Forint and a slowing economy.

In April, Hungary was the European “leader” in inflation (24 percent), which fell to 21.5 percent in May, which was the first monthly decline since 2020.

The government capping food and petrol prices did little to help citizens, but it did result in shortages that appeared for the first time since the collapse of socialism.

Prime Minister Orbán blames the EU and billionaire George Soros for the economic crisis, but many international institutions and domestic analysts agree that the Hungarian economic crisis is actually a crisis of Orbán’s government model, which rests on three populist pillars: cheap money, loose monetary policy and generous spending.

Did the economies of Turkey and Hungary get sick only because they were “infected” by an external factor (global crisis) or are there some internal causes that predominantly affect the economic results?

Although he tried to bring the social and economic life in Turkiye under control from the beginning of his term in office, Erdogan only managed to do so when he received enormous power in the 2017 referendum, which effectively reduced the importance and influence of independent institutions and began to manage society and the economy with the powers of an ancient sultan.

He is the only state official who gives green or red light to the government’s decisions. The system he created relies entirely on him.

During his term in office, the rule of law, media and civil freedom significantly worsened. The president controls the administration, the judiciary, the media, the education system and the police, and there is no institutional possibility of re-examining his decisions.

The authoritarian system ensures his victory in the elections because all state resources are mobilized for that purpose, so the elections in Turkiye are described as “free but unfair” and the concept of his government as “competitive authoritarianism”.

He is the key arbiter who judges who benefits economically from a business or government decision, and to succeed in any business in the country one must be a member of the ruling party.

The president announces an increase in civil servant salaries, the disbursement of pensions or subsidies for entrepreneurs. The ruler freely uses the state treasury without any independent institution being allowed to check or determine his responsibility for possible failures.

It has been rumoured that the so-called “Gang of Five”, a group of construction company owners, are given all government-funded contracts.

But it’s not just the five big construction companies that benefit from doing business with the state – there are many people and their families who would lose money and influence if Erdogan is defeated in the elections.

Clientelism is deeply rooted in the system and has not solved a single problem but actually only worsened the economic situation. The economic crisis can be partly attributed to the pervasive corruption in the government.

Prime Minister Viktor Orbán can save the failing Hungary economy only if he finds enough money to do so and it seems that the European Union is currently the only saviour.

By the way, Hungary is the second largest net recipient of EU subsidies, which on average make up three to four percent of Hungary’s GDP (roughly equal to the country’s annual economic growth). Hungary can now count on 22 billion euros from various crisis and regular EU funds until 2027. But all those billions were put on hold.

The problem is that the Hungarian prime minister has jeopardized all of that because he is not on good terms with the EU.

Brussels blames him for creating the most centralized political system in the Union, destroying independent institutions, abolishing the rule of law, tightly controlling banks, construction companies, retail chains, agricultural combines and telecommunications companies, stifling the media, judiciary, educational institutions and the non-governmental sector, limiting free market competition and virtually annulling all European democratic values.

Other objections include the creation of one of the most corrupt states and the EU is particularly concerned about the misuse of funds of its funds which are used to increase the wealth of people close to the ruling Fidesz party.

Analyses of domestic and European institutions have shown that Orban is channelling EU development funds to his friends.

Similar to Turkiye, Hungary has so-called “four musketeers”, owners of private companies and friends of the prime minister who received 1.9 billion euros from 2010 to 2016 through state-funded contracts.

An analysis of public procurement contracts by Transparency International showed that from 2007 to 2015, the value of each contract on average increased by a quarter compared to market prices.

Managers of German, Austrian and French companies claim that they are under pressure to sell part of their ownership to oligarchs close to Orbán’s government, while the government’s goal is to bring important economic sectors under state control.

Clientelism goes along with corruption. For every job or service, you should contact the ruling party. Business people, local politicians, TV presenters and musicians are loyal to Fidesz and Orban because the prime minister’s support is good for their careers.

The European Parliament believes that Hungary is not a “full-fledged democracy”, but a “hybrid regime of electoral autocracy” and that EU values (respect for human rights and dignity, freedom, democracy, equality and the rule of law) do not coincide with the values of Orbán’s government.

Inflation and the economic crisis in Turkiye and Hungary are a lesson that only democracy – not autocracy and populism – is a beneficial political system for a healthy economy, that is democracy as a system in which there is a separation of powers, controlled executive power, rule of law, free market, independent institutions, free media.

In the beginning, I mentioned Serbia as an “inflationary” country, but I did not deal with it in too much detail.

I leave the consideration of the similarity between the Serbian government and Turkish and Hungarian ones to the readers to discern.”

(Danas, 04.08.2023)

This post is also available in: Italiano

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