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Editorial: Corruption cases eroding faith

The following is the editorial column from the March 13-26 print edition of the Budapest Business Journal.

It’s about time someone looked into Péter Juhász’s allegations. According to the fifth district councilman, his own local government has been giving away real estate at fabulous discounts to friends of the people in power for years now. He has outlined evidence of inappropriate and apparently illegal local government management, but the prosecutor’s office is not investigating his claims.

In an effort to get some action, Juhász (pictured) has organized demonstrations about the issue, including a general demonstration against several cases of apparent corruption on March 8. Still no one seems to be listening.

As the accusations of corruption mount, and the government remains passive, it erodes faith in our leadership – and creates a lack of transparency that can scare away investment.

In district five, Juhász’ investigation shows a consistent pattern of a small group of people, who are apparently closely connected to individuals in the local government, buying prime commercial properties at 30% of the market rate after as little as three months of tenancy. While long-term renters of council flats, or other district properties, are supposed to get such a discount, Juhász says he has already identified roughly 150 cases of suspicious discounts on commercial properties in the district. These include instances where a long-term tenant had to move out because their rent was tripled, and the new tenant who moved in immediately afterwards was immediately offered a chance to buy the property at a discount. According to Juhász, almost all of these properties went to single bidders, and in almost all these cases, the same consulting company produced a very similar report justifying the sale.

Juhász claims that, even though the fifth district has no need to sell its properties to raise cash, at least a couple thousand such sales have taken place in a period of about eight years, and he says they are continuing. The councilman estimates that these sales have cost the district about HUF 10 billion. While he says that many sales took place when Antal Rogán, the current leader of the Fidesz parliamentary faction, was the mayor of the district, Juhász adds that it appears likely that corrupt sales practices also took place when members of the Socialist Party were in charge of the district.

And yet the prosecutor has declined to investigate either current or previous fifth district governments. The European Union is not so hesitant, as OLAF, the EU’s anti-fraud office, has been investigating alleged abuse of EU funds during the district’s “Heart of Budapest” renovation program, which was approved in 2007 and completed recently.

The March 8 demonstration against corruption included complaints about a by-now familiar litany of similar cases including the following:
 

  • The details of the deals between the Hungarian government and the Russian firm Rosatom to update the Paks nuclear plant were recently declared classified for the next 30 years, even though critics have questioned the financial logic of many of those deals.
     
  • The prime minister’s son-in-law, whose lighting company Elios Innovatív Energetikai Zrt. (formerly E-OS Innovatív Zrt.) has reportedly received HUF 6 bln in government contracts since 2010, is being investigated after it was determined that it won four tenders valued at HUF 1.2 bln in an allegedly fraudulent manner. Most of the firm’s tenders involved providing lighting for municipalities, and they were paid in large part with EU money, which may be why this investigation is going ahead. Despite the investigation, it was announced on March 9 that Elios has just won another tender to modernize Mórahalom’s public lighting – and that the HUF 64 million project will be 85% funded with EU money.
     
  • The tax authority (NAV) has been accused by the American cooking oil company Bunge of allowing some firms to bribe their way out of paying value-added taxes. But NAV just investigated itself and declared itself honest, publishing a report on March 4 that says American firms and all others are treated equally and fairly.
     

We could go on, but it just gets depressing. The point is, the blasé approach to corruption in these and a host of other cases is creating a situation where the government’s credibility is dubious, and investors are increasingly concerned about the transparency – and hence predictability – of the system.