Hungary's new PM to honour pay promise
By Stefan Wagstyl, East European Editor
Published: May 20 2002 20:22 | Last Updated: May 20 2002 20:22
Peter Medgyessy, Hungary's prime minister-designate has promised to implement campaign pledges to raise public sector pay and pensions, even at the cost of increasing public borrowing.
Mr Medgyessy takes office on May 27 following last month's general election victory.
His promise could raise concerns about Hungary's commitment to prudent fiscal policies among observers, including the European Commission which is monitoring the economies of Hungary and other states seeking European Union accession.
In an interview with the Financial Times, Mr Medgyessy said his 100-day programme of increases would be implemented even if it meant raising public borrowing above the current official forecast for the year of 4.8 per cent of gross domestic product. He said the final figure could be "somewhat higher than 4.8 per cent" but the plans had to go ahead because without them "the health system would collapse...and teachers would leave the profession."
The European Commission warned last month that the budget deficit was likely in any case to increase from 4.3 per cent of GDP last year to 4.9 per cent, because of the outgoing government's policies to counter an economic slowdown with increases in public spending. These had a potential to expand liabilities which could not easily be reversed, said the Commission in a report.
However, Mr Medgyessy, a former finance minister and banker, said the planned spending increases could be sustained because from next year, the country would have new policies to boost investment and growth.
Mr Medgyessy's Socialist party is forming a coalition government with the liberal Free Democrats, after defeating Viktor Orban's right-of-centre Fidesz grouping.
Mr Medgyessy promised to press ahead with Hungary's bid to join the EU in 2004. But he warned that he would defend Hungary's national interests in the accession negotiations. These are now entering a critical phase with the controversial issues of farming, regional policy and budgetary affairs on the agenda for settlement by the year-end.
Mr Medgyessy said: "In the case of Hungary, which only recently regained its independence, enlargement can only be accepted by the public if it is seen as not giving up even a part of that independence."
Mr Medgyessy was "dissatisfied" with the terms agreed by Mr Orban's government on foreigners' rights to buy Hungarian agricultural land. Hungary secured a seven-year transition period during which such sales would be restricted, compared with 12 years negotiated by Poland.
Mr Medgyessy's officials said Hungary was considering raising this issue in the context of the farm policy negotiations. But Hungary had no intention of re-opening negotiating "chapters".
Mr Medgyessy said his watchwords would be "predictability, transparency and the rule of law". He wants to contrast his administration with that of Mr Orban, whose administration was accused of corruption and political favouritism.
Mr Medgyessy would also seek as soon as possible to resolve the argument with Slovakia over a Hungarian law which grants special rights to ethnic Hungarians in neighbouring states. The law was seen in Slovakia and Romania as an attempt to assert extra-territorial rights.
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