Attila Chikán: We can let the deficit soar, but it is important what we spend the money on

Forecasts for this year's economic outlook are getting more and more negative. How do you see the prospects for the Hungarian economy this year?

All predictions are very uncertain, as it is largely up to the coronavirus how the economy can be restarted. You can keep speculating, of course, but based on the forecasts, we can expect a clearly negative scenario. No one knows exactly how deep the downturn will be, as the central bank, the government, the EU and the OECD are expecting very different degrees of recession. It is certain, however, that the economy will decline and

in my opinion, recovery will be slow even if the government’s crisis management currently focuses more on the economy than before. And no one can foretell today when recovery will start in the first place.

By the end of August the deficit had jumped to nearly 2,300 billion forints, and the government now expects the deficit to reach 7-9 percent by the end of the year. The Governor of the National Bank György Matolcsy recently wrote that we can let the deficit soar until 2022. How do you see this?

The deficit can be allowed to soar in a disciplined manner, because in this situation it is definitely necessary to increase public spending.

The main point is not so much the deficit itself, but how we spend the amount injected into the economy. I’m not really optimistic about that. At the beginning of the crisis, I think the government managed the situation very well from the point of view of health protection and also regarding restrictions, but

I am not satisfied with the economic and social measures. The balance between these two is important, as our goal should be to minimize, as much as possible, the number of families and businesses that are destroyed by the pandemic.

What are your views on the crisis management measures taken so far?

As I have said earlier, my biggest concern is the social insensitivity of the measures. The support provided to people who have been made redundant is one of such measures; both the amount and the duration of the support are insufficient. The amount allocated for this by the Hungarian government is much less than in other former socialist countries.

They do not address at all the new kind of unemployment that has developed in the middle class, where people and families who used to have a stable livelihood before the crisis have now found themselves in a hopeless situation.

I am thinking here of people working in tourism, the music industry, retail, who are now without jobs and incomes.

What makes the situation even harder is that, as we know, Hungarians have enough savings for barely three months on average;

and then we haven’t spoken about the worsening of the situation for those people that had already been living on the margins of society before the crisis.

Nor can we be proud of direct economic measures, as the amount of support provided to small businesses is strikingly low compared to what they have received in other countries, but also compared to what they would need.

There are, of course, good measures, too; for example, loan programmes help some businesses. These programmes, however, are not segmented enough: they do not take into account the diversity of businesses and their problems.

In my view, another problem is that during the crisis the government did not cut back at all such unnecessary investments as, for example, sports investments or the construction of the Budapest-Belgrade railway line. It is also problematic that subsidies have mostly landed in large companies and in the usually favoured groups.

Do you think inflation can be curbed this year?

Economists, regardless of the coronavirus, have been talking for a year or two about an imminent crisis that the country is not prepared for. The government communication never spoke about the fact that the undeniably favourable macroeconomic indicators were mainly due not to the performance of the Hungarian economy, but to the favourable international financial markets and EU subsidies.

Macroeconomists have long predicted rising inflation, and while it is not clear to what extent the coronavirus crisis is responsible for the current situation, I do not really believe that inflation can be curbed now.

Is it possible, in times of crisis, to strengthen domestic companies in such a way that competitiveness and innovation can be promoted?

This would require a truly comprehensive and committed government programme. It’s a serious problem, also acknowledged by politics, and the causes are largely identified.

The 330-point competitiveness report of the central bank and its new report published earlier this year contain a lot of valuable thoughts, giving a realistic picture of the state of the economy, and we can agree with many of their findings.

They also acknowledge the fact that most of our problems are not with economy itself, but with the social phenomena associated with it; health and education just to mention two of them. At the same time, the central bank reports identify the problem, but do not provide a solution to it - it is true that this is not their task, although their influence is enormous. Many of the problems recognized before the crisis still exist today, and many have become even worse.

For example, the productivity of Hungarian small businesses remains very low, even though it has risen according to the latest reports.

We don’t know whether this improvement will continue after the current crisis. All the more so, because during the crisis, the government supported large companies rather than small ones. That is to say, at least it is doubtful whether the turbulence caused by the coronavirus crisis can help the institutional and structural transformation needed to increase competitiveness. Of course, there are always those who can benefit from situations like this, but I don’t see that guaranteed for the whole economy.

What are the major competitive disadvantages Hungarian companies are facing now?

Low productivity is the biggest problem, compared to both Western European small businesses and large domestic companies. Some reasons are rooted in our economic system, such as corruption and bureaucracy, which significantly drain the energy of small businesses, reducing their initiative.

The other one is the low supply of quantitative and qualitative assets. The low level or even lack of knowledge regarding work organization and management is another serious obstacle.

For example, many small business owners are lagging behind in risk management; they cannot assess how much risk a given factor poses to them or what security measures are needed to mitigate its impact. Or, for example, they cannot use or invest temporarily free funds effectively. But again, the fundamental problems are not these.

Corporate lending was running high last year and even at the beginning of this year. Do you see any chance that this can continue?

The corporate palette is highly segmented. There are sectors and companies that have been less affected by the crisis: they will be more open in this regard. However, most companies will be much more reluctant than before.

The transformation of universities has been in the limelight in recent weeks, in connection with the University of Theatre and Film Arts (SzFE). How has the new system with the foundation and board of trustees worked so far at Corvinus?

I think it was high time Corvinus, although I consider it a strong university in Central and Eastern Europe, had undergone a major professional and organizational change.

Of course, this could have been done by other means. There are still a lot of open questions, but I believe it is possible to benefit from the changes. Unlike SzFE, we are not experiencing strong external ideological or political pressure. However, the state of the general environment has also indirect effects, so the fate of SzFE is also a serious concern for us regarding future prospects.