25 Hungary

Karas

(see also cap/dependency and ecc/turkey)

We detail the consolidation and limits of financial statecraft and authoritarian financialization in Hungary and Turkey over the past two decades, analyzing how changing global liquidity conditions between the early 2000s and the 2020-22 Polycrisis have affected the state’s management of money.

In both countries, financial crises in the early 2000s incentivized public interventions which momentarily consolidated a centralized system of political control over money managed by the executive from the mid- to late 2010s onwards. Soon, “defensive” forms of financial statecraft were revamped into “offensive” tools, allowing the executive to ride the wave of cheap global capital liquidity by deepening credit-based accumulation, which enhanced GDP growth and co-opted large social constituencies via subsidized lending.

The semblance of an economic miracle broke down in both cases as soon as global credit conditions worsened: the hitherto expanded and centralized executive control over money proved unable to simultaneously manage public debt and the financialization of the private sector.

Faced with this dilemma, Hungary and Turkey first followed different strategies: In the context of peak global inflation, and the resulting interest rate hikes in Core Central Banks in 2022, a disinflationary power bloc prevailed in Hungary between the executive, non-tradable domestic capital factions, and households hurt by inflation. For Viktor Orban, this meant sacrificing large-scale subsizied lending programs for households and SMEs which had previously played a crucial role in stabilizing the Fidesz regime.

In Turkey, a narrow power bloc between Erdogan’s hyper-presidential regime, export-oriented SMEs, and the construction sector maintained a loose monetary policy against the resistance of the Central Bank and the interests of wage-earning households hurt by inflation. In the second half of 2023, Erdogan sidestepped this strategy as the costs on the sustainability of public debt proved overwhelming, and even exporting firms were hurt by rising intermediary import costs due to hyperinflation and collapsing exchange rate: thereafter, Turkey signalled a similar approach to Hungary’s conversion to an orthodox crisis-management strategy but at the time of writing, its full adoption and impact are yet to be seen.

In fair weather, a dramatically expanded political and institutional apparatus empowered the Hungarian and Turkish executives to centralize control over the domestic circuit of money, giving the illusion that semi-peripheral financial statecraft had managed to simulatenously contain the destabilizing effects of global financial mobility, while harnessing credit-based accumulation for cultivating patron-client relations to help the political stabilization of these regimes. The dramatic shift in global credit conditions in 2022 lifted the veil over this illusion: no matter the expansion of executive control over the domestic management and allocation of money, a global liquidity contraction forced these regimes to prioritize fiscal solvency and the exchange rate by opting for austerity and aggressive interest rate hikes, which undermined their capacity for pacifying wide cross-sections of society via subsizied credit.

The Hungarian and Turkish pathways contain multiple lessons which resonate in the wider Global South.

Karas (2023) Financial Statecraft and its Limits in the Semi-Periphery