Hungary Faces Mounting Risks of Corruption, Prejudice and Press Restrictions
Overview of Political Capital Institute’s 2010 Political Risk Index
June 9, 2010
Hungary’s 2010 Political Risk Index (PRI) score is 66 points – the first year the country’s political
risk has declined since the index began in 2005. However, a closer examination of the details shows
that the lower risk is not necessarily cause for celebration: Political risks stemming from corruption
and prejudice remain persistently high, and, for the first time, risks to press freedom are on the rise.

The main reason behind Hungary’s improved political-risk situation is the surge in government
stability that followed the Fidesz party’s overwhelming victory in the April 2010 elections.
However, this will only last as long as Prime Minister Viktor Orbán’s administration keeps strict
budgetary policy and handles its power to amend Hungary’s Constitution responsibly. (Fidesz has the
unprecedented power to make constitutional changes thanks to its two-thirds majority in Parliament.)

Corruption and prejudice continue to pose a high political risk and restrictions on press freedom
represent a new threat. The new press-freedom risks stem from a strong market concentration of
private news organizations with ties to Fidesz, rather than stronger government influence on public
media.

The possibility that Fidesz will make haphazard changes to criminal law raises risk levels in the
Rule of Law category (in the same way that half-baked constitutional amendments may pose risks to
government stability). Fidesz’s pledge to seek out and punish members of the previous Socialist
administration in connection with corruption merits particularly close scrutiny; the so-called process of
elszámoltatás (“calling to account”) may pose risks to the independence of investigators and the
judiciary.

Risks related to state bureaucracy and government intervention in the economy will likely
remain low. The government has already implemented several initiatives aimed at streamlining state
administration. Fidesz is also unlikely to boost the rate of wealth redistribution or tighten restrictions
on economic freedom, although it might boost control over certain economic sectors. The biggest risk
for the new government is if Fidesz leaders maintain the rhetoric and the policies they espoused
while in opposition, which can bring severe punishment from the markets.
PRI subindices
Subindex
PRI 2010
PRI 2008-2009
Rule of Law
62 (-4)
66
Government Stability
75 (+15)
60
Freedom of Press and Speech
58 (-3)
61
Corruption
58 (+2)
56
Prejudice and Xenophobia
59 (-1)
60
State Bureaucracy
74 (+3)
71
State Role in the Economy
71 (0)
71
POLITICAL RISK INDEX
66
64
Risk is measured on a scale of zero to 100, with zero representing the greatest risk and 100 the least.
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Hungary’s overall PRI score has risen to 66, compared with an all-time low score of 64 in 2008 and
2009. Hungary’s hitherto uninterrupted rise in political risk has thus turned around for the first time since
2005.
Year
PRI
Hungary’s PRI Scores for the Past Five Years
2005
2006
2007
2008-2009
70
66
66
64
2010
66
High-risk areas:
1) Corruption: Hungary’s widespread corruption fuels negative opinions abroad and resentment
toward politicians at home. Corrupt behavior is not specific to any single political group, nor
is it limited to the political sphere. The government will need to push through fundamental
systemic changes if it wants to fight the problem. However, the change in government does
not bode well for any anti-corruption fight: The Orbán administration has implemented a
brand-new government structure (the “superministry” system), which will inevitably create
temporary dysfunctionalities in state administration and raise corruption risks. Also, business
interests that have performed favors for Fidesz will now expect “payback” in the form of
government contracts. Finally, it cannot be ruled out that certain people close to the new
government will get buried in the “avalanche” of corruption prosecutions that Orbán has
promised, as happened in Bulgaria’s anti-crime crackdown.
2) Press Freedom: According to unconfirmed reports, Fidesz is planning to create a more
centralized management structure for state media. The new arrangement may be justified by a
need to “rationalize” public media, especially in financial terms. However, the changes may
prove dangerous, especially if they create opportunities for politicians to increase their
(already significant) influence over state news organizations. In addition, recent developments
in the private media market bode badly for press freedom. The past eight years have seen a
proliferation of private media groups that are linked to Fidesz. They exercise substantial
influence over advertisers, which may mean less ad revenue for news outlets that are not allied
with the government.
3) Prejudice: Questions over how to integrate the Roma minority and roll back anti-Gypsy
prejudice will become increasingly urgent across Central and Eastern Europe. Hungary is by
no means alone: Roma citizens in the Czech Republic, Romania and Bulgaria have
experienced even greater difficulties in integration than in Hungary. The most important
questions for the near future are: (1) Will the region’s extremist political parties continue to
gain ground by using anti-Roma slogans? (2) Will moderate parties try to boost their
popularity by appropriating elements of the extremist parties’ programs? (3) Will recovery
from the financial crisis ease anti-Gypsy sentiments and anti-foreigner attitudes?
Rule of Law: 62 (-4) – Increased Risk
The “rule of law” category is approaching a medium-risk level this year. Although Hungary’s
Constitutional Court has recently ordered Parliament to modify several laws that require a two-thirds
vote for amendments, lawmakers were unable to muster the 66.7% majority, creating an atmosphere
of legal limbo. This situation now poses a risk: Since Fidesz basically has carte blanche to modify
laws that require a two-thirds majority for changes – without consulting any other political
group – the Orbán administration may go “hog-wild” with amendments without taking adequate
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deliberations. Such half-baked legal changes may create long-term chaos in Hungary’s constitutional
law system.
Fidesz’s plan to “call to account” and punish members of the previous Socialist government in
relation to corruption also deserves special scrutiny. The current laws give Fidesz a very narrow
room for maneuver in this area. Any relaxation of these rules, or the slightest suspicion that
defendants are being politically targeted for corruption prosecutions will raise serious doubts
about the independence of the judiciary and the validity of the legal system.
The fact that opposition parties have practically zero influence on the lawmaking process also presents
a risk because their only option will be to attack Fidesz’s laws on grounds of anticonstitutionality. Rule of law may be damaged if opposition parties overuse this method. A
similar risk arises should opposition parties try to block the government’s initiatives by calling
referendums. In representative democracies, the referendum is a tool that should be used only in
exceptional circumstances; parties stand may endanger rule of law if they use public votes to achieve
political aims.
Government Stability: 75 (+15) – Strong government, strong anti-establishment attitudes
Government stability has increased substantially thanks
to Fidesz’s 68% majority in Parliament (this includes the
Christian Democratic People’s Party (KDNP), which is
essentially a faction within Fidesz). Meanwhile, the
severely divided opposition parties – some of whom are
preoccupied with internal troubles – have no hope of
challenging Fidesz-KDNP’s supremacy in the near
future. The new Orbán government enjoys a level of
administrative and political stability that no other
Hungarian government has had since the
transformation. However, this stability will only be
positive for investors and international institutions if the
government maintains budgetary discipline. The Orbán
administration therefore faces significant pressure to
implement structural reforms that may be unpopular with
voters.
The fact that the government is stable does not
automatically mean the political system will also
remain stable. Fidesz, as the leading government
force, will have to address rising anti-establishment
sentiments. These voters not only reject the political
elite, they reject the system in its entirety. At present,
more than 20% of Hungarians are open to prejudicial,
anti-establishment, authoritarian ideologies and policies
– more than double the percentage of Hungarians who
espoused such views in 2003. Hungary is currently the
fifth-most anti-establishment country in Europe; this is
reflected by the fact that trust in public institutions has
been spiraling downwards and that the extreme rightwing Jobbik party made a strong showing in both the
2010 general elections and the 2009 vote for European
Parliament. Fidesz is trying to address the demand for a
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new political system by portraying its own rise to power as a “revolution,” using words such as “social
contract” and “national cooperation.”
The government can take two different routes. One possibility is that Fidesz will try to fulfill the
expectations of anti-establishment voters by setting up an entirely new political system in the
new Constitution promised for 2012-2013. The other possibility is that Fidesz will stick with the
current system and try to disperse the anti-establishment groups rather than appease them.
At present, it is not clear which direction the administration will choose – but the decision is not
up to the Fidesz leadership alone. The party’s voter base, its intelligentsia, domestic politics and the
international environment will have key roles in determining which path the Orbán government takes.
Freedom of Press and Speech: 61 (-2) – Stronger political influence
Sales in Hungary’s print media continued to decline in 2009, which can be explained by the rise of
online and electronic media and the decreasing demand during the global financial crisis. International
organizations that monitor press freedom took a dim view of developments in Hungary, mostly thanks
to Hungary’s anachronistic media-regulation laws. The Fidesz government’s two-thirds
parliamentary majority creates an opportunity to resolve the long-standing problems in the
media law, but it also opens the door for increased political influence. Current trends show little
reason for optimism: Hungarians’ trust in the press in 2009 was far weaker than in other countries in
the region, as well as the European Union average. Developments in the country’s private media
market will be crucial.
Corruption: 58 (+2) – Slight improvement, serious risk
Hungary is in the middleweight class of corrupt countries. In comparison with other CEE countries,
Hungary has made minimal gains against corruption since 2008, helped by the fact that authorities
are investigating numerous accusations that have surfaced over the past year. Although these
much-publicized inquiries may discourage future malfeasance, corruption remains a high-risk
area. Contrary to popular perception, corruption is not always linked to an unprincipled political elite;
it has deep roots in Hungarian society. At this point, it remains unclear how the Orbán administration
plans to roll back the problem. One of the most crucial points in Fidesz’s government program was its
pledge to bring corrupt politicians from the previous government to justice. Yet beyond naming some
murky affairs that need to be investigated, the document does not offer many concrete details.
Prejudice and Xenophobia: 59 (-1) – Worsening anti-Gypsy discrimination
Prejudice and xenophobia have remained strong over the past year. The biggest risk remains antiGypsy discrimination. The majority of Hungarians have long held strong prejudice toward the Roma
minority. However, the past few years have witnessed a surge in anti-Roma sentiments. Many
Hungarians now consider it acceptable to speak openly about “Gypsy crime” and express prejudicial
feelings. The most important question is what initiatives the new government will undertake. In the
short term, Fidesz will try to curry favor by imposing law-and-order policies (more police on the
streets, decisive steps against criminals) and passing laws aimed at reassuring the majority of
Hungarians (a California-style “three strikes” law, abolishing “crimes of necessity” as a legal defense,
cutting off welfare payments for parents whose children skip school, and harsher punishments for
crimes committed against schoolteachers). Yet such initiatives treat the problem of Roma integration
as a criminological issue; they do not address the roots of the problem.
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State Bureaucracy: 74 (+3) – Opportunity for more-efficient public administration
Fidesz will continue the effort to merge government departments and eliminate redundancies,
which began in 2006 but soon ran out of steam. Orbán’s penchant for centralized control will
help boost efficiency in public administration. The transformation of the government system
appears positive, especially given the restoration of the position of state secretary in charge of public
administration. It also poses risks – for example, Fidesz’s decision to restructure the government has
left some ministries with an overly broad scope of authority. Centralization will extend to regional
administrative bodies as well. As with any systemic transformation, streamlining the state will
inevitably create short-term chaos in certain areas, but will probably reduce political risk in the long
term – as long as the new system proves workable.
State Role in the Economy: 71 (0) – Continued low risk
Over the past eight years, Fidesz has
consistently argued for greater state
intervention in sectors such as
healthcare, public transport and
utilities. The state will probably step
up its control in these areas. At the
same time, the Fidesz’s primary goal is
to kick-start economic growth; this can
only be achieved by tax cuts that are
financed by lower government
spending. For this reason, we expect a
smaller, leaner state in the medium
tp long term. As Fidesz Vice
President Lajos Kósa and Orbán
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spokesman Péter Szijjártó demonstrated in their “smash the forint” speeches on June 3 and 4, the
biggest risk for the new government is if Fidesz leaders maintain the rhetoric and the policies they
espoused while in opposition. In this perspective, the most critical policy area is healthcare. Fidesz
lashed out at every single initiative to reform Hungary’s medical-provision system over the past
four years. However, tight financing means the government will have no choice but to make
changes; there are even signs that private capital might play a role.
Political Capital Institute’s annual Political Risk Index (PRI) measures a country's political and social stability on a
100-point scale. Political Capital develops the index and the related study based upon its own analyses and forecasts,
as well as data from more than 40 other research institutes. A higher index score indicates a lower risk level: 0
represents maximum political risk and 100 indicates minimal risk. Political Capital published its first political risk
analysis in 2003. In establishing the index values, our methodology utilizes data and events from the past year
and takes future expectations into account. Our analyses emphasize forecasts of future risks and strive to put
all country information in a regional context.
The full study and an explanation of its methodology are available for download at www.orszagjelentes.hu.
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