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Hungary’s State of Corruption Heading Towards Elections

tangentopoli // 2022.02.21.

Címkék: english

After 12 years of authoritarian rule, Orbán’s System of National Cooperation has reached its final shape. In 2021 government party Fidesz did its best to cement its positions in oversight institutions and markets it hijacked. Without being really aware of it, Hungarians donated national assets worth billions of Euros to the power elite of the regime. The institutions concerned have largely accepted this logic of power, just as the majority of the society.

This is an overview of systemic corruption in Hungary ahead of the parliamentary elections this April, told by the nonprofit public funds watchdog K-Monitor. Links in the text to further information are in Hungarian where no English language sources were available. The original Hungarian version of this blog post is available here.

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Information monopoly

The year 2021 was the most destructive period of the coronavirus in Hungary. By now, 43,000 Hungarian citizens had died in the pandemic a city's worth of people. On the surface, the government’s main concern until the summer was the fight against the epidemic, but in reality, even then it was this year's elections that determined its actions. In order to dominate the public discourse, access to information became more monopolised than in the years before. During the entire pandemic, the government did not publish up-to-date, relevant data on the infected and the deceased, the situation in hospitals, the studies and analyses that would justify government decisions, and often no information on the fate of the money spent on fighting the epidemic. The sporadically published data were often misleading. One of the most outrageous cases was when figures presented by the government suggested that Russian and Chinese vaccines are more effective than others by falsely interpreting statistics. Later it turned out that the Sinopharm vaccine had a low effectiveness on elderly people, while they were among the first ones to receive the Chinese jab. According to a recent court decision the government unlawfully banned independent media from entering hospitals under Covid. As a reaction, the PM issued a decree in just a few days that made a lawful ban possible in order to avoid media access to health care institutions before the elections. 

It was thanks to the work of NGOs and journalists that spatial data on the number of deaths  was revealed, as well as the considerations on the basis of which vaccines were authorised by the government. It was not only the public that was left without data, but municipalities were also not informed by the government about COVID related figures that would have been necessary to implement measures against the pandemic. The secrecy was also visible in the field of Covid spending: without any substantive consequences, the government has spent hundreds of billions on health equipment that were exempted from public procurement, without even disclosing the names of suppliers after contracting. In addition to overpricing, there were quality problems, while firms having close ties to the government have earned an extreme profit from the pandemic. As it turned out, a great share of ventilators purchased was not needed and some of the equipment and vaccines were eventually given away by the government. Other issues were also not easy to get information on in 2021. Pursuant to a special law invoking “state of danger,” government institutions may automatically extend the response time for potentially inconvenient data requests by the media up to 45 or even 90 days justifying their decision with an increased workload due to Covid. Even the Constitutional Court's standpoint that a sound reasoning needs to be provided in such cases did not change this either, and also did not help in cases where requests were simply rejected. Where denial was not enough, classifying sensitive documents helped. The feasibility study behind a 35 years motorway concession, the Lake Velence water replenishment plan and the plans of a VIP tunnel under the national football arena Puskás Stadium have been all classified. But even what was not secret was hard to find out about. Legislation restricting basic rights was often published only hours before it came into force, and announcements were first made on the PM’s social media channel in order to make it the central source of information under the pandemic. It became a symbol of the government’s information policy when in the spring of 2021, a government decree containing the latest Covid related restrictions in near-final form could first be read on the website of a shop for car parts and appeared only later in the official bulletin.

 

Propaganda and media

In 2021, the government continued to use its tried-and-tested tool of hyping pseudo-problems, preferably by masquerading a particular social group as the enemy of the nation. In 2021, the LGBTQ community was targeted under the pretext of a paedophile threat. A so called national consultation was launched on post pandemic policies faking real discourse, while packaging government propaganda into questions. At the same time the government has blocked referendums during the pandemic, and failed to comply with the law on mandatory public consultations of legislation for years. In 2021, the Prime Minister’s Cabinet Office led by Antal Rogán (a must see video in the link) spent HUF 113 billion (EUR 320 million) on propaganda and events, that’s almost three times the amount spent on the “Get ready for Brexit” campaign by the UK government. Last year, the government used public money to go on a Gyurcsány rant. Ex-PM Ferenc Gyurcsány, the government's main bogeyman was successfully included in the national consultation’s questions, and at the end of the year he also showed up in the "Hungary goes forward, not backwards" government campaign - an unprecedented move by the government to campaign openly against the opposition directly from public funds.

Of course, the State Audit Office (led by a former Fidesz MP) that monitors party- and campaign finance, has not taken any action, nor has it intervened in connection with the fact that Zsófia Koncz, a Fidesz candidate, exceeded the spending ceiling for candidates with her Facebook ads in last year's by-election in Borsod county. This may seem like a small matter compared to the fact that the public media’s annual budget for the election year was increased to HUF 130 billion (EUR 365 million). Public media in Hungary has been turned into the propaganda machine of the government over the past decade. Just to mention the most outrageous cases of 2021: The public radio has presented fictional elements of the anti-Gyurcsány propaganda movie, the Cost of Deception as facts in one of its shows referring to opposition leader Gyurcsany’s wife as a person who decided over police brutality against demonstrators in 2006. Gyurcsány was Prime Minister in 2006, his wife Klara Dobrev, now MEP, had no relevant political role back then, but became one of candidates at the opposition primaries in 2021, thus an important target. MTI, the Hungarian News Agency, also part of the public media conglomerate and also under total political control, did not even report on the opposition primaries where 660k people cast their ballots. According to the Prime Minister, this was rather beneficial for the opposition. 

In a very different way there is interest towards the activities of the opposition and independent actors: the story broke this summer about the Israeli spy software, Pegasus, that was used to monitor professionals who were probably considered as a threat for those in power or their political interests. Politicians, lawyers, businessmen, journalists and even the bodyguard of the President were targets of surveillance by the Pegasus software. The justification of these operations is still unclear, thanks to the loose laws governing state security. The deficiencies of this law had been found to be a violation of the European Convention on Human Rights years ago. Members of the government did not take responsibility or disclose any details regarding the application of the tool. The chairman of the Committee on Defence and Law Enforcement did finally confirm that the government bought the tool but falsely stated that it was the Ministry of Interior, thus proving that the National Assembly does not exercise meaningful democratic control over the secret services. Information from the committee sessions on the matter have been classified until 2050.

The role of the Parliament became more and more formal in the last decade anyway. Since the beginning of the state of danger, Hungary has often been governed by decree, but even when legislation happened in the Parliament, Fidesz MPs supported every motion of the government unanimously, ensuring the smooth application of their super majority. The public's limited access to decision-making has been also manifested when the Parliament operated as usual. The government has failed to consult the public and stakeholders for years as it is required by law. In addition, it prefers to submit omnibus bills to the parliament covering extremely different subjects, making the lawmaking less transparent. This is how the government finally managed to silently reform the administrative judiciary despite heavy EU criticism towards its original plans

 

Opposition parties

In the case of Fidesz, it is a well-known fact that instead of the party, the state is the one paying for a large part of the propaganda. Although the amounts vary, it is not yet clear where the opposition got the money from to pay for the primary election campaigns and how it was spent. Fun fact: even during the primaries, Fidesz and its circle spent more on social media than the opposition parties. At the 2021 primaries civilians and parties were able to conduct a national election with hundreds of thousands of voters participating, without the help of state bodies. It was carried out quite smoothly, with the results accepted as valid by the parties. And from a political point of view, the fact that one half of the political community of Hungary had a say in the selection of individual candidates and the candidate for prime minister, can be seen as a turning point in participatory politics. Thanks to the primaries several old-timers of the political underworld could be stopped from running at the 2022 elections

After the partial victory of the opposition in the municipal elections in 2019, one of the front lines of the war against the opposition has become the municipal sector, which is also suffering the direct effects of the pandemic. The government has diverted half of the local business tax revenue in 2020 and 2021 from municipalities and plans to do so again this year. At the same time  the government left no other way to compensate for the loss of revenue, since taking a loan requires a permit from the government. While the central government has increased its budget deficit, charged taxes and run into debt, municipalities are left to vegetate. An estimated HUF 220 billion (EUR 620 million) was therefore missing from the cash box of municipalities in 2020, representing 9% of their revenues – that number is 18% in Budapest. The promised compensation was allocated according to party affiliation, so the tax cut has proved to be an important tool to limit the room for manoeuvre of opposition municipal leaders and their success before the elections. 

The government has certainly not forgotten that it drew on the resources of Fidesz run municipalities for its successful 2010 campaign and wanted to close this avenue for its opponents. This idea of funding national level politics from local corruption may have inspired the 'City Hall affair' of last Autumn, fueled by government media, in which the capital's left-liberal leadership was accused of plotting to privatise the city hall building and selling property on “commission”. The office of the mayor of Budapest has denied such intentions and published the documents of recent property sales and plans for the reconstruction of the city hall that should prove that there was no intention to sell it. Furthermore a functioning investigative committee has also been set up (a rarely seen move) that was attended by all invited parties. Still, the reprimand handed out to the head of the property management company, who was wiretapped when talking about selling the building and other properties, was almost certainly not enough of a political consequence to convince people following the case in the pro-government media of the city administration's integrity. The police were unusually quick to launch an investigation and raid the city hall, while government propaganda tried to keep the issue on the agenda (by drip-feeding intercepted recordings) in order to maximise public awareness. It is worth comparing how the same outlet forgot to publish information on a recent high level corruption scandal under Fidesz, involving a deputy minister under investigation.

 

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Sándor Pintér, Minister of Interior and Lajos Kósa, Fidesz vice-president and chairman of the Parliament's Defence Committee

 

Rescue of assets

While the government propaganda accused the opposition mayor of Budapest of the intention to sell the city hall, last year the government was busy privatising state assets itself. In 2021 it sold the former headquarters of the State Railway Company (MÁV), holiday resorts on Lake Balaton and several state properties in Budapest. In fact, in many cases the state has not even asked for money for its privatised assets. It has donated state assets worht thousands of billions of Forints to organisations controlled by its close circle and paved the way for further free asset transfers by allowing the government to give away sport facilities without remuneration. It took some public outrage and the Constitutional Court to stop municipalities being forced to sell off their public housing for petty cash to people who had lived there for a few years.

In the past year, more than ever before, the government has taken decisions without any justifiable public policy objective behind them, only to preserve political power, redistribute economic positions to friends and expand cultural influence.

The biggest – but perhaps still under-reported – story of 2021 is that of the ever-growing number of public interest trusts (KEKVA), a special type of legal entity between the public and the private sector run by government appointed board members. Two-thirds of the 33 KEKVAs set up by the end of 2021 will manage higher education institutions previously run by the state, the rest will be linked to some kind of cultural or educational activity, basically connected to the ideological mission of Fidesz. As a result, boards of trustees full of government officials control 70% of Hungarian higher education, with ministers and secretaries of state  exercising power over university staff and budget. Board members are irreplaceable after a change of government. The KEKVAs are not only a source of unlimited wealth for the close circle, but can also help in disseminating the cultural products of the political right, assist the campaign of Fidesz, outsource and control higher education, ensure the continued funding of political-economic think tanks close to Fidesz and the supply of the right-wing political elite. These trusts ensure that the current governing party retains a say in the management of strategically important companies (Richter, Mol) in the event of a change of government as the government donated its stakes in these companies to some of the trusts.

The state has renounced its right to intervene in the future in the operation of the foundations established with public funds, or even to control their activities, while at the same time it has made a long-term commitment to finance the operation of the KEKVAs from the budget. The members of the board of trustees are essentially exempt from any rules on conflict of interest, while they represent both the foundation and the university they govern, or a multinational company, the governing party or even several of them at the same time.  Szilárd Demeter, who, in a paper later retracted, called Europe “the gas chamber of George Soros” is leading one of them. Last year he gained control of main institutions of Hungarian culture, as well as many tens of billions of forints in real estate assets. But it is beyond comprehension that public assets have been transferred to the Mathias Corvinus Collegium, of which deputy minister Balázs Orbán is the chairman of the board of trustees. The latter received state assets worth around HUF 500 billion (EUR 1.4 billion), however its public mission is questionable as it is a conservative elite college serving mainly  as a recruitment base for Fidesz. 

 

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Balázs Orbán, Marcell Bíró and Szilárd Demeter: Orbán loyals who made it to the top

 

Cementing loyalists in key positions

There has also been a significant reduction in the room for manoeuvre of successive governments in another area. Many competencies previously belonging to the government, including the control of huge sectors, have been reorganised into a new giga-authority, formally independent of the government. It is headed by the Prime Minister's own confidant, Marcell Bíró, with a 9-year mandate. The Supervisory Authority for Regulated Activities started operating on 1 October 2021, and it oversees sectors stuffed with money: tobacco trade, gambling, concessions, bailiffs, liquidations and mining supervision. This move could make it impossible for a future government to implement its public policy plans in the areas concerned. It is not incidental that the biggest market players of the sectors under the authority are almost invariably pro-Fidesz interests. 

In a separate organisation, but with a similar fate, the Hungarian Atomic Energy Authority has also recently been given a new leader until 2030. The authority is a crucial institution for the controversial nuclear power plant investment, Paks 2, that is funded through a Russian loan and constructed with mainly Russian technology. This means that this sector will also be outside a future government's control. 

Ten months after the silencing of the opposition leaning radio station “Klubrádió,” the head of the National Media and Infocommunications Authority (Nemzeti Média- és Hírközlési Hatóság – NMHH) Mónika Karas, renowned for the biassed decisions of the authority, resigned. Not because of her decisions, but to ensure that a new Fidesz appointee is installed before the upcoming elections for a 9 year mandate. She was replaced by András Koltay, who served as the Rector of the University of Public Service, which was established by the Orbán government, as a key recruitment base for public officials. Ms Karas was parachuted into the State Audit Office (SAO) of Hungary to work alongside SAO President László Domokos, who is nearing the end of his mandate and will likely be replaced by her. Officially initiated by Karas, the “voluntary” quit was rewarded by a HUF 41 million (EUR 115k) severance package and compensation. Through such moves the government ensured that the majority of oversight institutions will remain in the hands of Fidesz loyalists for another government cycle or even longer.

At the end of the year, it was also revealed that Viktor Orbán would like to see Katalin Novák succeed János Áder as head of state – Novák, the Minister of Family Affairs, has since resigned from her government post. Novák belongs to the young, dynamic generation of the governing party that the PM has begun to bring to the limelight in recent years. The government has also remembered shortly before the elections that, although a two-thirds majority was required to elect the Prosecutor General, a simple majority was sufficient to remove him, so it quickly changed this rule to a two-thirds majority, thus further strengthening the position of the almost irreplaceable ally of the PM, Péter Polt. His mandate had been extended for another nine years in 2019.

 

Fight against corruption

The Prosecutor General remains one of the most important guards of Orbán’s system of national cooperation or corruption – since the beginning of Orbán’s rule, he has ensured that the essence of Fidesz's policy ("corruption" – a bon mot by Orbán’s advisor András Lánczi) can prevail, and that there will be no legal consequences in the future. While it is considered as a positive development in recent years that proceedings have been brought against several members of parliament, in most of the cases that have come to light, authorities continue to cover up for those with close ties to the political elite – even if the institutions of other countries or OLAF do the substantive part of the work for them. This happened in the case of Fidesz MP Flórián Farkas, various actors in the Elios case connected to the PM’s son in law investigated by OLAF or the Microsoft case investigated by US authorities or the privatisation of INA by MOL investigated by Croatian authorities.

Perhaps the biggest successes in the fight against corruption have been achieved in combating informal payments in healthcare. After a new law entered into force in 2021 criminalising so-called gratuity payments, which has a long tradition in Hungarian health care, the National Protective Service has been carrying out a series of reliability checks against healthcare employees and busting sports doctors, chief physicians, nurses, as well as health workers who have been giving out immunity cards in exchange for money.

However, it is the governing party's political interests that rule the law enforcement at the police and the National Tax and Customs Administration (Nemzeti Adó- és Vámhivatal- NAV), when a case reaches high levels.

It was almost comical when the police were unable to bring to light who wrote the defamatory articles in the propaganda press that were published without credits against opposition MP Ákos Hadházy, although it really would not have required major effort to check the editorial IT system or ask the publisher’s employees. Another example of politically biassed law enforcement is how the prosecution handles the cases of MPs accused of corruption. None of them have been arrested, and if their vote was needed in parliament, they have been even released from their court hearings. It also does not seem to be a problem, if it is revealed that one of these MPs, György Simonka has also initiated a legislative amendment in order for him not to have to pay compensation for the damage he has caused. Even convicted politicians cannot expect serious punishment, still, there are hardly any cases where a story goes as far as an indictment. Last year’s most high-profile corruption case was the unexpected fall of Pál Völner,  the deputy justice minister (who, incidentally, gave authorization to wiretap journalists and those who stand in the way of the government with the Pegasus software). He is now accused of having received a few million in bribes in exchange for influencing the appointment of bailiffs at the highest level. According to the prosecution services, Völner received a total of HUF 83 million (EUR 230k), in instalments of 3 millions (EUR 10k) over three years. It remains a question, how far investigations will go: what will happen to Völner and whether there will be any other high-level defendants in the case. According to a leaked investigation report, the head of cabinet of minister Antal Rogan also appeared among the persons involved in the scandal. At the request of the prosecution, Völner's immunity was lifted, but he was not to be arrested. The Minister of Justice has not acknowledged the case publicly, and no one is claiming political responsibility. 

 

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Pál Völner (on the right) is suspected to have received money to carry out his official duties in the interests of the President of the National Order of Judicial Officers, György Schadl (on the left).

 

The unusually high political level of the proceedings in this case was not enough to impress the European Commission, which, after the dispute had been dragging on for more than half a year, did not give go-ahead to the HUF 2,500 billion Hungarian recovery plan. The reason for that was that the EC did not see sufficient guarantees that the financial interests of the EU and its taxpayers would be safeguarded, i.e. that the money will not be stolen as it has been so far. Speaking of the Union, it was in 2021 that Fidesz left the EPP following an acrimonious relationship and was relegated to a political no man's land. There is also a new threat lurking for Orbán. After the CJEU’s decision, the new rule of law mechanism may be triggered on Hungary (and Poland) this year, which could lead to the suspension of further EU funds. Illiberal governance has been much less tolerated by the EU than in previous years. In the case of the aforementioned recovery funds, the EU has criticised in particular the independence of the judiciary, the lack of action against high-level corruption and problems with the public procurement system. This, however did not stop the government from launching public procurement tenders from the expected RRF funding, so it is not surprising that some of them were won by the company of Lőrinc Mészáros, the PMs closest crony who has become the country’s richest person over the last 5-6 years.

Last year, a whole new type of competition has appeared in construction procurement: from time to time, Lőrinc Mészáros and his relatives compete against each otherand they win!

 

Wasteful and spectacular government projects

Systemic corruption, the weakness of control institutions and the lack of transparent lobbying procedures constantly produce spectacular, often unimaginative and economically unsustainable investments, which are seized by the interest groups in power. At the lower end of the circles close to the government, it is the importance attached to the inauguration of the developments (ribbon-cutting, a selfie with the minister), at the higher end it is the client positions acquired in the previously created institutions, and even higher up it is the friendship of the contractor (and the potential benefits that this brings) that drives it all – with the taxpayer footing the bill. With the completion of stadiums, now it is the sports halls that dominate, alongside the all-time favourite swimming pools and spas

 

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The state of emergency gives the government the freedom to reorganise the budget – and that provides the opportunity for the handouts, that used to be given out only at the end of the year, to continue throughout the year, ignoring the budget altogether. The manifestations of this (alongside the usual spending on the church and on ethnic Hungarians living in the neighbouring countries) were the World of Hunting and Nature Exhibition; last year's celebration of the national holiday on the 20th of August boosted to billions, the Expo in Dubai with an expensive Hungarian pavilion, the MotoGP track in Hajdúnánás getting off to a slow start, the construction of the Sátoraljaújhely suspension bridge, the Shaman Drum from the Expo Milano in Karcag getting underway. All this while the developments of previous years either continue to rot half-finished or are left without a real operator and functions. Of course, the feast will come to an end: at the end of the year, the budget deficit that got out of control led to a two-stage spending cut of HUF 755 billion (EUR 2bn) for 2022, but lobbying is probably still ongoing within the government on exactly which investments will be stopped (the Pécs stadium is already being skipped). The fate of the Fudan University, which was planned by the Government to be built on a Chinese loan to replace a plan of developing student dorms there, is still uncertain – the opposition has initiated a referendum on the issue. At the same time the indebtedness of the state has reached a record level.

 

“National bourgeoisie”

In 2021, public procurement remained the main channel for market distortion and the financing of contractors close to the government. Trends dominating in 2021 were giant procurements and framework contracts, where only the biggest players could compete, without surprise winners in the weak competition. In 2021 HUF 4,222 (EUR 12bn) billion was spent through public procurement, which is the highest annual amount ever, while the number of procedures was significantly lower than in most of the years before. Construction accounted for 62% of procurements, expenditures of works grew by HUF 1000 billion (EUR 2.8 bn) compared to 2020. The agency responsible for digital governance and the state infrastructure company NIF Zrt put out tenders worth over a thousand billion of forints in 2021. V-Híd, a company owned by Lőrinc Mészáros won two gigantic tenders at NIF Zrt, including the construction of a few kilometres of the Southern Ring Railway for more than HUF 300 billion (almost EUR 1 bn). Strabag and a consortium by Dömper Kft., a company whose owner has business ties to ex-Deputy Minister Völner, a suspect in the above mentioned bribery scandal, got the go-ahead to build the 32-kilometre section of the M100 road between the towns of Bicske and Esztergom for a similarly huge price.

In other sectors, the bill was also padded: with over HUF 700 billion (EUR 2 bn) in public procurement, the Directorate General for Public Procurement and Supply was also in the top three, with B+N Referencia Ltd. winning almost HUF 500 billion, which is essentially the service of an entire sector (cleaning of healthcare institutions). Another major job that landed in the hands of the companies with strong ties to the government is the overpriced, never-to-be-returned Budapest – Belgrade railway line built in cooperation with Chinese companies from a Chinese loan. Its foundation stone was laid in the autumn of 2021. The aim of the development is to channel trade from China through the port of Piraeus to Western Europe via Hungary. 

Overpriced purchases are generating considerable profits, and the big players in the construction industry were performing well despite the pandemic. Companies with ties to the PM were making even bigger profits than others in the same industry. And when there is not enough money left over from state subsidies and public procurement for further acquisitions, soft loans from the state or close-tied banks can be used. The Prime Minister's son-in-law, István Tiborcz was one of the biggest beneficiaries of the state-owned Hungarian Development Bank’s loan programme, and several of his tourism investments have been supported by loans from “friendly” banks, such as those linked to Lőrinc Mészáros. Next year, Mr Tiborcz himself could be a lender, as it was revealed at the end of the year that he had acquired a majority stake in the small Granit Bank. 

By the end of 2021, companies close to Fidesz will have become market leaders or key players in dozens of sectors.  They could hardly have grown to this size without government and taxpayer support.

Lőrinc Mészáros now owns the entire Tigáz gas  company, and thus operates  a 33,000 kilometre gas network, and with the acquisition of the company Titász, he now also controls the electricity network of north-east Hungary. Important changes have also taken place in the IT - telecommunications sector in 2021. It is maybe less relevant these days that the Hungarian Post's telegram service was discontinued after 174 years this spring. A much more important development is the case of 4iG, a company linked to the government-close oligarch Gellért Jászai, who even appeared in the Pandora Papers. In 2021 4iG made a big step forward thanks to businesses with the state. The company, which has been linked to public procurement worth hundreds of billions of Forints, hopes to buy into a satellite operator, semi-privatised the state-owned Antenna Hungária, responsible for national terrestrial television and radio broadcasting, as well as wireless business telecommunication. It owns a quarter of the mobile provider Telenor (Hungary) and, since the summer, MVM Net, which operates the government's strategic telecom infrastructure. 4iG also bought Digi, a cable TV and internet provider covering most of the country and will likely become the most dominant player of the Hungarian telecommunication sector. "Isn't that a bit too much?", one might ask, but given the national strategic importance of the transaction, the Hungarian Competition Authority did not require further information on the deal. And this is not the end of the story, the German Rheinmetall AG announced that it intends to take up a 25.1% stake in 4iG, meaning an investment worth over HUF 100 bn (EUR 300 million) into the government-close enterprise. Hungary, however is not a new market for Rheinmetall, which received an EUR 300 million contract in 2019 from the Hungarian government to produce main armament and hulls for the Army’s PzH 2000 self-propelled howitzer and Leopard 2 battle tank.

There is more: A takeover by government-close oligarchs is also expected in the insurance market after the state prevented the acquisition of Hungarian insurance company Aegon by Austrian VIG. The government invoked national security as a reason to hinder the takeover. The government eventually contributed to the deal by acquiring a 45% stake both in Aegon and VIG-owned insurance company Union. By the end of the third Fidesz term, Viktor Orbán’s clientele had become virtually inescapable in strategic sectors such as media, telecommunications, energy and banking. And through concessions, they can dominate lucrative areas such as casino operation, expressway maintenance and development (for 35 years!), waste management, gravel mining or mobile phone payments for decades. This is why the creation of the Supervisory Authority for Regulated Services was crucial. The only strategic sector that Orbán did not conquer yet is the retail sector, although the products of Lőrinc Mészáros' agricultural companies are on the shelves of all the grocery chains, and Dániel Jellinek, a real estate mogul who does business with the PM’s son in law and also joined the board of one of the government-close public interest trusts, seems to be buying into the French supermarket chain Auchan. Orbán’s cronies have also made acquisitions in smaller sectors: the market for CIT services is further concentrated around István Garancsi's interests, and New Land Media, which organises part of the government's propaganda and lives off the state, is one of the largest media agencies to get its hands on one of the biggest players in the event technology market. The perverse logic of redeployment to larger, more closely-tied players has also reached the public procurement consultancy market

However, citizens are not only financing the current expansion of the Orbán system, but we are also footing the bill for one of the government's first market rip-offs: a decision in May 2021 ordered the state to pay EUR 73 million in compensation to the French company Sodexo, which was squeezed out of the cafeteria market in 2012. Of course, there is still room for expansion. The country’s main airport operator, Budapest Airport has also almost been obtained in 2021, but that got cancelled: rumour has it that private interests would be at play here too, with the state digging deep into its pockets. 

A two-tier system of care for the rich and the poor is emerging in the health sector traditionally dominated by the state, and the flow of wealthier patients to private providers have been accelerating, with some seeing this as a business opportunity. One of the most revolting news in 2021 was the revelation that, in a world of crumbling hospitals and underpaid professionals, instead of supporting the public health system, the government had funded the private clinic of former liberal economy minister János Kóka with a generous subsidy. We would not be surprised to see a radical turnaround in this area if there was a next Orbán government. 

 

The royal household of the Prime Minister

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2021 was a year of prosperity for the Prime Minister's family and his inner circle. The family estate in Hatvanpuszta, built with billions of forints, is nearing completion and seems to be a very modest property compared to Vladimir Putin's Black Sea palace. It is not worth looking at the prime minister’s asset declaration for the source of the construction, but company information records show that over the past seven years, HUF 15 billion (EUR 42 million) in dividends have been taken from mining companies owned by the father of PM Orbán, including one that was a supplier to state projects. While there were still significant assets and loans floating around István Tiborcz in 2021, the prime minister's son-in-law and Orbán’s daughter Ráhel left Hungary the year before the elections and moved to Marbella, even though they have plenty to do here at home. Ráhel Orbán has just set up a new company, Odu Store, and with another business venture she is creating a brand for a new Budapest hotel for the Marriott hotel chain. The Prime Minister's son-in-law has taken over hotels in Austria and Hungary from Lőrinc Mészáros, but he has also extended his own holiday home at Lake Balaton. However, István Tiborcz also showed his philanthropic side on several occasions, for example by backing a film by the actor Károly Eperjes, a long time admirer of the PM, and paying off the debt of a paramedic's family who had died because of the coronavirus.

It's a political tabloid, but still an important event of 2021 given the power logic of the system, that the divorce of Orbán’s top crony, Lőrinc Mészáros’ went smoothly. The ex-wife of Hungary’s richest person is out of the "family business", all assets are safe and Mr Mészáros has since remarried. The couple’s wedding featuring Rod Stewart, their prominent new residence and a safe deployed through the balcony have become iconic moments of last year.

Of course, the real safes are not in the palaces of oligarchs, and also not necessarily offshore. Orbán’s oligarchs have placed a significant part of their assets in more than 40 private equity funds, making it impossible to know where the capital came from and who actually the investors are. There is a private equity fund close to every self-respecting pro-government financier, be it the PM’s friend Lőrinc Mészáros, the PM’s son in law, Istvan Tiborcz, the circle around the PMs informal advisor Arpad Habony, the president of the Central Bank, Matolcsy, the IT mogule Gellert Jászai or Zsolt Hernádi, the leader the national oil company MOL, who was even convicted for corruption in Croatia. 

But showing off anything that exceeds the declared wealth is becoming less and less shameful in Hungary, and the behaviour of the political leadership has contributed to this. After the yachting spree of the minister of foreign affairs in 2020, last year the family of propaganda minister Antal Rogán's wife has been in the spotlight with a complicated land deal that was finally cancelled worth HUF 1.6 billion (EUR 4.5 million) funded by an extremely favourable loan. Minister of Justice Judit Varga has increased her real estate assets with the help of loans and the Housing Subsidy for Families (CSOK) unimaginable on market terms. The latter funded by the state is designed to help families buy a home, yet Ms Varga drew down the loan on a weekend house in a remote village, where she has not lived since. Previously, it was revealed that the minister had both taken out a housing allowance for state officials while renting out one of their family apartments on Airbnb., and the same company will renovate the building of the Central Bank as the one that built the holiday home of the bank president's son. The young gentleman is also the owner of the company that supplies another building of the Central Bank with new furniture and also lives in a villa that was owned by one of the foundations of the Central Bank and then sold to a - guess what - private equity fund. It is almost not worth mentioning that the chief of staff of the speaker of the Parliament László Kövér has been implicated in an embezzlement issue in 2021 and that the Jozsef Antall Knowledge Centre, named after the country’s ex PM, that received endless government funds, needed to be winded up after it turned out that its leadership (mainly Antall’s son, Peter) wasted millions on expensive travel and equipment.

 

Priority investments

It is now virtually impossible to measure the totality of the wealth held by government-close oligarchs and cronies but it is easy to notice it, as their investments determine entire streetscapes. On Budapest’s main boulevard Andrássy Street almost 20 properties are linked to pro-government businessmen. Their expansion will continue around the “public funds cemetery” in the city park known as the Liget Project, which will continue to cost even more in 2021. But it's not just the Pest side of the capital that has attractions connected to Fidesz, with hundreds of billions being spent to turn Buda Castle into a government quarter. Buda Castle had traditionally served as the court of the monarch, and after World War II it housed cultural institutions open to the public until Orbán started to develop a government district there. In 2021, billions of Forints are pouring into the old-new Ministry of Finance building, which is being renovated by a business partner of the PM’s son in law. This is just one out of several architecturally questionable investments affecting world heritage sites of Budapest. Another one is the MOL Tower, the national oil company’s skyscraper, that is being built in a less central location, but will be visible from all sides thanks to the approval of friendly authorities. At least it won't be funded by taxpayers.

This cannot be said of MOL CEO and convict Zsolt Hernádi's other project that clearly involves public money, the recently opened luxury hotel in the city of Esztergom - a new addition to our database of Hotels and restaurants connected to politically exposed persons, NER Hotel. In 2021, tourism investments closely tied to the central power have taken place all over the country, be it Tokaj, the drying Lake Velence, Lake Fertő or even Lake Balaton. Poor Hungarian oligarchs are unable to build hotels solely from their own capital, many of them have only been able to build their hotels from the taxes of citizens who are not wealthy enough to be their hotels’ guests. Two-thirds of the more than HUF 200 billion (EUR 570 million) distributed under the Kisfaludy tourism subsidy programme went to the 100 largest winners, with PM’s friend Lőrinc Mészáros' interests among the top winners. Due to the endlessly softened public procurement rules, even those winning billions of forints did not have to put up the works carried out with public money for public procurement, so the more resourceful oligarchs can even use their own interests to carry out the developments. After that, the HUF 1.5 billion (EUR 4m) in state subsidies secretly distributed by the members of two exclusive groups of restaurant and winery owners among themselves, seems like small change.

Not only did the Orbán government help its friends with tailor-made tenders, loans, EU and state subsidies, but also with a favourable regulatory environment (or lack thereof).

By the end of the third Fidesz cycle, the number of priority government investments had exceeded 3000. If the government marks an investment as a priority, the project will be exempted from a significant part of the construction rules and permits much to the despair of local residents. On the bright side, the victims of such investment are increasingly organising themselves into groups and speaking out on issues where the authorities are failing to engage with those affected.

 

Nonprofits and GONGOs

Authorities and nonprofits have also confronted each other at the national level. At the same time as the repeal of the anti-NGO law in the spring, the government made a new attempt to make it more difficult to fund civil society initiatives by banning anonymous donations. It quickly backtracked on this, but prevented the Norway Funds from operating again in Hungary. Not only did it deprive Hungarian NGOs of grants worth billions of Forints, but with this it also gave up the roughly EUR 200 million subsidies from Norway that the state could have distributed for development purposes within the same program.

Of course, the government has not forgotten about its own "nonprofits'', creating the Urban Civic Fund of HUF 4.4 billion (EUR 12 million), through which it has allocated millions to pro-Fidesz organisations. Several of these soon switched on their campaign mode. The Batthyány Lajos Foundation, which was turned into a public interest trust (KEKVA) last year and which has been generously supporting the work of the pro-governmental think tank Centre for Fundamental Rights, for example, has remained an important player in supporting pro-government pseudo-NGOs. 

State-owned companies also did their part in 2021 to support the Fidesz campaign-NGOs. With the state lottery Szerencsejáték Zrt. and the Hungarian Development Bank also contributing tens of millions to the GONGO Civil Union Public Benefit Foundation (Civil Összefogás Közhasznú Alapítvány – CÖKA). CÖKA is behind the right wing Civil Union Forum (Civil Összefogás Fórum – CÖF) that is responsible for organising the “Peace March'' (Békemenet) demonstrations. The aim of these mass demonstrations is to mobilise Fidesz voters and to support the government’s communication. CÖKA also financed the “Stop Gyurcsány! Stop Karácsony!” posters that were on billboards all over the country and portrayed the former PM and the incumbent mayor of Budapest as participants of a ridiculous reality show. 

The scheme to fund pro-government campaigns through GONGOs also works at the local level. The Pest County Municipality dominated by Fidesz was quite generous to pro-government organisations, while local firefighters serving voluntarily were left without any financial support. It is not irrelevant that the money came from Samsung's tax in Göd, which the government took away from the town under a previous attempt to weaken opposition led municipalities. The most spectacular pro-government campaigns of the year were that of the influencers from the Megafon Centre, who campaigned along Fidesz political messages on various social media platforms for no less than half a billion forints (EUR 1.5 million). The source of the ads was the generous support of Fidesz-sympathetic businessmen – and the circle is closed: the SAO does not investigate campaigns on Facebook, and the wealth gained from the goodwill of politicians thus becomes unhindered resources for Fidesz’ propaganda. Worried how fair the 2022 elections will be? The OSCE was worried too, and recommended a full-scale electoral monitoring mission in Hungary. 

 

Forthcoming elections

Not only has the government started last year with a loud campaign, but it has also introduced legislation that makes voter tourism easier: it is no longer necessary to live in a registered residence in order for the authorities to consider it as the official residence. In previous elections, transporting voters with fictitious addresses to influence election results has developed into a separate industry. Meanwhile, the prosecutor's office has not hurried to work on the cases that should have been investigated for transporting voters in previous elections. When the government should have acted, it did not. The president of the National Election Office, who resigned in 2020, pointed out on her departure that some irregularly large districts should be redrawn due to changes in the number of eligible voters. Her recommendations would have negatively impacted the districts gerrymandered by the ruling party, so they chose to ignore them. Fidesz also ignored the issue of fake parties that were funded to embezzle public funds and confuse voters: they still owe billions to the state, the main protagonists were not prosecuted, in fact, one of their leaders, “Doctor Gödény” recently known for being Covid denier, announced that he will run again in 2022. In this context, it is a small detail that the National Election Office announced an IT development in which it will be easy to check whether a person's name has been misused in the course of recommending candidates. 

Even a player from the porn industry signed up for the 2022 elections: György Gattyán, the billionaire who is behind the sex chat site LiveJasmine, founded a fresh political movement to run at the election, posted posters across the country with ads about the importance of digitalisation and even got endorsement from Ronaldinho. In the eyes of the united opposition, newcomer Gattyan is acting in favour of Orbán to mislead opposition voters by presenting a fake alternative. In the light of the above, perhaps not surprisingly, we are not optimistic about the uncontrolled emergence of great fortunes close to politics.

******

It's a cliché that the government is heading into the elections with a brutal advantage of resources. However, the PM can be concerned about the spill-over effects of the pandemic and economic policy based on dispersion, record price inflation, a public deficit getting out of control and an opposition that became united. It is also clear that whoever wins the election will start the next term with limited room for manoeuvre, deficits to be cut, high inflation rates and an economy based on perverse mechanisms. The effects of systemic corruption outlined above, the main and most persistent policy of informal bargains and dependencies will severely impact Hungary’s economy and governance for the upcoming years. It may be useful for some to maintain their power, but it is certainly not what we believe politics should serve. Hungary's real, decades-old problems are likely to remain unaddressed: an income-divided society that rewards relationships rather than merit, an outdated and underfunded education- and healthcare system, and masses of young people seeking for a better future beyond the borders of the country. 

 

 

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