The administration of George W Bush is well known for being awash with former petroleum industry executives. That’s fitting, some say, for a country that slurps up more oil than any other. So perhaps it is appropriate that one of the most overbanked countries in Europe – Hungary – should get a banker as its new prime minister.
Sworn in on May 27 at the head of a Socialist-led coalition cabinet, 59-year-old Peter Medgyessy was from 1990 to 1994 the head of the local office of Paribas, and then Inter-Europa Bank from 1998.
Between these jobs he was finance minister, a job he also held when the Hungarian Socialist Party was still called the Hungarian Socialist Workers’ Party. A model technocrat, he is not even a member of the party he now leads in government, having been fielded as a compromise candidate against an incumbent many thought invincible. Medgyessy’s economic czar is Csaba Laszlo, 39, who until recently was deputy CEO of K&H Bank, co-owned by Belgium’s KBC and the Netherlands’ ABN Amro.
Being strongly committed to a pro-growth strategy, the two men are unlikely to disturb a banking market so glutted that some local corporates get better financing terms than their peers in western Europe. But two important bits of banking business await their attention. One is the state-owned Hungarian Development Bank, which the previous government tapped for a wide variety of policy and politically based lending and acquisitions, in the process widening the consolidated deficit by perhaps a percentage point of GDP last year alone.
The other is the fate of Postabank, which went sour under the last Socialist administration and was renationalized by the outgoing government. Laszlo had earlier said Postabank should be privatized but now it appears he may have to put up a fight to push the bank out of the state’s stable.
The new government has another pressing concern: National Bank of Hungary president Zsigmond Jarai. The former finance minister is also, unsurprisingly, a former bank executive, in this case CEO of ABN Amro’s local unit before it was folded into K&H. But if Medgyessy and Laszlo thought they could count on Jarai for a bit of bankerly solidarity, they were sorely mistaken. On the Wednesday before the new government took office, the central bank raised interest rates for the first time since late 2000, from 8.5% to 9%. The surprise move, which was in response to rising inflation and a falling forint, resulted in a bungled T-bill auction and some unbrotherly words between the various former bankers.
