Editorial: Predictable, transparent governance pays

History

The following is the editorial from the March 25 biweekly edition of the Budapest Business Journal.

When Standard & Poor’s explained why they chose to keep this country’s debt rating in junk territory on March 19, they cited a host of risks, including concerns that have become a regular feature in credit assessment reports on Hungary: “a less predictable policymaking environment” and “increasing opaqueness around key institutions, such as the central bank”.

Not only does the poor S&P rating mean Hungary must continue to pay more to borrow, it also suggests that outsiders will probably think carefully about investing here. But the government seems perfectly happy to ignore the constant drumbeat of warnings from neutral observers.

This is exactly what the ruling Fidesz party did in early March, when it pushed through a law to classify information about how the Hungarian National Bank uses public funds to speculate in the property market. The legislation was arbitrary and unpredictable, and its goal was to increase opaqueness in the central bank. It was as if officials had already read S&P’s March 19 advice and decided to do the exact opposite. Fortunately, President János Áder refused to sign that law, making the obvious point that the public has a right to know how public funds are used. The legislation was sent to the Constitutional Court for a legal review, but that does not mean the law will be rejected.

Other state spending has been declared classified, including the €12 billion deal to pay Russian energy firm Rosatom to upgrade Hungary’s sole nuclear power plant at Paks. S&P mentions this as the kind of huge project that can hurt Hungary’s outlook, and European Commission regulators have questioned the economic sense of a deal that they say would produce electricity at more than market cost. The government says the so-called Paks II project makes sense, but we have no way of knowing for sure, because details about the deal are kept secret.

We could mention a long list of information that the government has decided not to share, as well as scores of seemingly arbitrary laws that have been railroaded through Parliament. As soon as Fidesz took over governance of Hungary in 2010, it used its two-thirds majority in the legislature to rewrite the constitution at breakneck speed, without transparent debate, and it has maintained this approach to governance ever since.

When people in this country complain about the way Fidesz pushes through seemingly ill-considered legislation, or its lack of transparency, the government may try to dismiss these critiques as opposition politics. But when outside credit ratings constantly bring up the same problem, it is harder to ignore.

Transparent, predictable and fair governance is a prerequisite for a healthy competitive market. A lack of transparency is not only bad for democracy; it is also bad for business.

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