2007 – a year of paradoxes in Hungary – report

As in the previous year, the 2007 political risk index (PRI) published each year came to 66 points. Accordingly, Hungary continues to occupy the bottom of the low risk band, close to the lower third of the medium band. Political risks that started to rise in 2006 remained unchanged in 2007, and the country still finds itself in a political “trough”. The year has been characterized by contradictory and self-destructive political developments. While there were minor positive changes in the area of bureaucracy and media regulation, in 2007 the government became unstable politically and institutionally alike, and constant organizational and personal changes seriously hampered efficient governance. Although the reform process continued, political hesitation over specific measures increased. While the government was successful in reducing spending in some areas and staff levels in the public sector, it failed to marshal sufficient political support for painful structural changes. Strong anti-government sentiment benefited the extreme right and, following the establishment of the Hungarian Guard and exploiting increasing anti-Roma attitudes in Hungarian society, it made great strides in its attempt to become an established political force.

The key risk areas are rising anti-Roma sentiment, ethnic tensions and segregation; permanently shifting and confusing tax system encouraging tax evasion; corruption in politics and the private sector.

At the end of 2007, the EcoRisk value measuring economic risk in Hungary reached 52.6 points (one year earlier it stood at 52.3 points). On an annual average EcoRisk came to 52.4 points (as compared to 55.1 in 2006), i.e., risks hardly changed, remaining in the medium range. In the fourth quarter of 2007 and compared to the same period a year earlier, of the four sub-indices three (finance, stability and labor market) improved slightly, and the fourth (growth) declined by a significant degree. In 2007 EcoRisk did not improve despite the drastic reduction of the budget deficit. This is explained by the poor structure of the stabilization program. 2007 was a year of contradictions and paradoxes in the Hungarian economy: while stability improved, the country's competitiveness deteriorated

The key risk areas are extremely high labor charges; the stability program put domestic economic growth on ice; the population's net savings are greatly depleted. (press release)