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Budget cuts make Hungary leaders even more unpopular

For the past few nights, the main television newscast here has opened with special reports on an issue that is testing the strength of the Socialist-led coalition government of Ferenc Gyurcsány: the future of the bloated Hungarian health system.

The government comfortably won re- election in parliamentary elections last April. But its popularity sank in September after Gyurcsány acknowledged that he had lied about the state of the economy during the campaign. Revelations this week about the government plans to close several hospitals or merge specialist clinics — never mentioned before the election — have done nothing to improve public opinion of the government, which has fallen into the single digits. Yet despite the growing discontent and unease, particularly in Gyurcsány's Socialist party, the prime minister is holding fast. And he may have to, since his economy minister, János Kóka, is threatening to pull his party out of the coalition if there is any backsliding.

„I am not interested in the coalition any more if it gives up the reform policy,” said Kóka, a leading member of the pro-business Free Democrats, the junior coalition partner of the Socialists. „We have one year to restore Hungary's full international reputation.” The government has much catching up to do to restore its reputation as a responsible caretaker of monetary policy. Rioters took to the streets of Budapest in September after Gyurcsány's tape-recorded comments about the economy were revealed.

From 2002 through 2006, the European Union and the International Monetary Fund repeatedly had warned the Socialist government about the growing budget deficit. By last year, it had reached 8.6% of GDP, excluding the costs of pension changes, which would make it more than 10%. The European Bank for Reconstruction and Development reported that Hungary „had the highest fiscal deficit among all the transition countries.” The government also kept interfering with the independence of the Hungarian National Bank, publicly questioning the central bank's economic forecasts and statistics, and ignoring its advice. It also delayed any discussion about when Hungary might be prepared to join the euro zone and refused to tackle the debts in the pension and health systems.

Kóka, a 34-year-old millionaire who made his money during the dot-com boom, insists that those days are over. „The relationship between the government and the central bank was insane,” he said during an interview. „It was unbearable for a young democracy.” Today, he said, „we are now committed to maintaining the full independence of the central bank.” The government also has agreed to decide in 2009 when it will join the euro. Kóka said he would like Hungary to join from 2011 to 2013. Gyurcsány said it could be between 2010 and 2014. As part of the requirements for joining the euro club, the government has set 2009 for bringing the budget deficit to less than 3% of GDP.

Kóka concedes that there will be a high price to pay for introducing a much tighter monetary policy and greater fiscal discipline. But he argues that the cuts in the health care system, for example, are „reasonable.” The country has roughly 784 hospital beds per 100,000 people, compared with an average 572 per 100,000 in richer EU countries. The government plans to cut the number by about 20%. „Look at the facts,” he said. „One third of the Hungarian hospital beds are empty. Every second hospital bed in Budapest is empty.” Beyond that, he argued that fundamental changes were needed to the „inherited structures” of the former communist regime. Even though Hungary has been rid of the one-party Communist state since 1990, Kóka said successive governments since then had been reluctant to introduce efficiency, genuine competition and transparency throughout the main sectors.

The government has also introduced a system of co-financing in order to restrict the use of medical services. „The co-payment means that the patient will pay just over one euro,” he said. „Is that such a heavy charge?” Critics, however, point out that the government has failed to invest in preventive and therapeutic medicine as a way to address the growing demographic problem and shorter life expectancy. According to a recent report by Budapest Analyses, which tracks legislative measures, the average life expectancy for men is 68 and for women, 76, among the lowest in the EU. Other changes have been introduced. Subsides for domestic energy consumption have been cut to encourage conservation and free up more resources for modernizing the infrastructure. „We have introduced a means-tested energy subsidy rather than have subsidies for everyone,” explained Kóka.

As a result, the retail price of natural gas increased by an average of 27% and electricity prices rose by 14.5%, according to the European Bank for Reconstruction and Development. The bank added that such price increases, as well as higher taxes, could squeeze consumer spending and weaken economic growth. The energy sector also would be fully opened up this year, he pledged, promising true competition and transparency. „I am fully committed to energy liberalization even though groups are trying to keep their monopolies and what they inherited from the old structures,” he said. „This is another remnant of the Socialist era.” (International Herald Tribune)