Hungary’s parliament endorsed Gordon Bajnai as prime minister on Tuesday, giving the political independent a mandate for austerity measures aimed at reviving an economy kept afloat by an IMF-led bailout.
Bajnai won support from the main Socialist party and the smaller liberal Free Democrats and promised painful spending cuts, fiscal discipline and measures including tax cuts to lift Hungary’s waning economic competitiveness.
Bajnai, who had served as economy minister for the past year, replaced the deeply unpopular Socialist Ferenc Gyurcsány who said last month that he would step aside as the economic crisis deepened.
“To restart the economy, we need to cut the tax burden on employment, increase the willingness to work and support work-intensive economic fields with high added-value,” he told Parliament. But he added that fiscal discipline was equally important.
“Budget balance, maintaining the deficit, which has been brought down to around 3% (of GDP) is an indispensable condition of crisis management”, Bajnai said. Without support for that agenda, he said he was ready to throw in the towel and support early elections.
Hungary became the first EU member to need International Monetary Fund aid and received a $25.1 billion rescue package late last year, funded by the IMF, the European Union and the World Bank.
Financial analysts welcomed the change and said Bajnai’s initial program appeared credible, although it remained an open question whether he would have the skills to push through unpopular but necessary measures.
The forint was up 0.8% at 288.5 per euro in thin trade after the widely-expected vote.
EXPERTS IN GOVERNMENT
Bajnai tapped outside professionals for key cabinet posts, appointing Péter Oszkó, the head of consulting firm Deloitte’s local unit, as finance minister. “I expect him (Oszkó) to keep the budget in balance, pay attention to the frugal operation of the state, and at the same time create the necessary conditions for growth by drawing up a new and simplified tax coded,” Bajnai said.
Oszkó’s task will be to save a budget that is on the verge of collapse as the economy shrinks by up to 6% and revenues fall short of their target. He will be forced to slash pensions, welfare spending including child benefits and public sector wages.
“The measures make the deficit target achievable,” said János Samu, an economist at brokerage Concorde. “The forint’s position at least shows that the market does not look into the future with more pessimism.” “But we’ll learn only in the autumn whether this is a government capable of operating or whether its program dies due to the struggles between the parties or struggles within the Socialists.”
Hungary’s forint sank to an all-time-low of 317.45 in early March, threatening the Swiss franc and euro based mortgages of hundreds of thousands of families, and damaging the already tarnished reputation of the Socialist government. (Reuters)