Hungary for Change

Hungary is heating up. The country’s nationalist government has gotten its share of criticism for its erratic policies in the past, but the country’s economy has unexpectedly accelerated. “Hungary’s economy grew faster than economists estimated in the first quarter as manufacturing and construction output improved, providing a boost for the freshly re-elected government of Prime Minister Viktor Orban,” according to Bloomberg News. “Gross domestic product rose 3.5 percent from a year earlier, the quickest pace since 2006, the Budapest-based statistics office said today, citing preliminary data.” And business and consumer confidence has been growing apace as the economy outperforms projections.

Still, there are doubters. Low inflation, falling FDI and an enfeebled banking sector are fuelling concerns over Hungary’s economic outlook,” wrote Elliott Wilson in Emergingmarkets.com. “Hungary’s economy is facing a toxic combination of low inflation, tumbling foreign direct investment and an autocratic government determined to interfere in the country’ banking system, analysts have warned. Foreign direct investment (FDI), a key measure of the strength of this outward looking economy, was negative in the first nine months of 2013, according to the OECD.”

The Wall Street Journal reported: “Hungary's central bank will revamp its monetary policy tools to push local banks to buy more Hungarian forint-denominated government bonds with the aim of reducing external borrowing and boosting growth.” The central bank wants to reduce the level of foreign currency debt.

The architect of the new banking policy and economic growth is generally considered to Gyorgy Matolcsy, who was Economics Minister until recently. The New York Times’ Danny Hakin wrote: “Few central bankers are as quotable as Gyorgy Matolcsy.”

There was the time Mr. Matolcsy, head of Hungary's central bank, said, "Hungarian tribes 1,500 years ago were well known for their three unique skills: brain surgery, hospitality and gastronomy." Or when, echoing the views of a Korean economist, he wrote that "the telegraph and the washing machine have made a real revolution in society," but "the Internet hasn't." Or when he proclaimed that the Hungarians and the Japanese are related because some of their babies have red dots on their backsides.

His policies are equally unorthodox.

Having previously served as economics minister, Mr. Matolcsy is the financial architect of the populist and autocratic Fidesz party, which consolidated its power in elections this past Sunday. The government, led by Prime Minister Viktor Orban, has promoted the nation's improving economic outlook, falling unemployment rate and easing deficit.

But critics have assailed Mr. Matolcsy for his initiatives as central bank chief and economics minister, and wonder whether they will catch up to Hungary in the long run — and undermine the democratic ideals and free markets that are supposed to underpin the European Union.

Matolcsy seems concentrated on the short run. The long run will have to wait.