How a single currency is creating a ‘global financial system’
It was an exciting moment in Hungarian history, but the country is not going to be able to celebrate it for a long time.
The country’s economy, which accounts for more than half the country’s $14 trillion economy, was hit by a sudden drop in foreign exchange earnings in January.
As a result, Hungarians are now forced to spend more money on imports and less on exports.
“It’s not just the money that’s falling,” says Ertugrul Kocsak, a finance professor at Hungary’s National University of Economy.
“The currency is also declining.
It’s very, very difficult to import things from the outside.”
The fall in the value of the Hungarian hryvnia was the first sign of a recession, and it has not abated even after the government introduced a $1.5 billion rescue program to help the country cope.
Kocsasak believes that the economy could have fared much better without the currency devaluation, which has led to shortages of goods, including clothing, shoes, cars and even water.
“If we had a stronger currency, we would have had a better chance to export,” he says.
“I would have been more confident in the export markets.”
While it is true that the currency is now stable, the devaluation is the biggest reason why Hungarian exports are declining.
The government blames a “global financial order” that is pushing the country towards a recession.
The devaluation and a drop in imports are the main reasons behind a spike in unemployment, according to Kocssak, who also believes the devaluations are having an impact on the economy.
The economy was expected to be growing at a faster pace than its GDP of 2.8 percent in 2015.
However, in January the Hungarian government announced a bailout program for struggling companies, which is expected to push the economy into recession.
According to Kostas Mönnemann, economist at the Hungarian Central Bank, the bailout program has been a major drag on the country.
“I believe the devalued currency has affected our export prices, which are not only at a low level but are also going down,” Möhnemann told The Associated Press.
“So the devaluated currency is having a negative impact on exports and on the value-added tax.”
In the country where many businesses depend on imported products, it is not just foreign workers who are struggling.
Hungarian farmers, who produce a large portion of the countrys agricultural output, are also suffering.
“The agricultural sector is not able to produce more food for the population,” Kocson said.
“There is no food to go around.”
In response to the devaluing of the hryva, the government has increased its foreign assistance to farmers by $4.6 billion.
But Kocsen argues that the government should have invested in the economy before the devalue, since it is already in a precarious financial position.
The central bank is also concerned that the devaluization could result in inflation.
Inflation is a problem in any country where the currency depreciates, as the currency can be used for imports and exports.
“Inflation is an issue in any economy,” Molluscan economist Péter Szent, who has studied Hungary’s economy extensively, told the AP.
“If there is a big devaluation that leads to inflation, it will be very difficult for the country to recover.”
“We are in the same situation that Greece was in,” he said.
The currency crisis, however, could prove to be Hungary’s undoing.
The country’s current economic crisis is far worse than Greece’s because the country has a much larger population and has a higher GDP per capita.
Hungary is one of the European Union’s poorest nations, with a population of just over 1.4 million, according the World Bank.
It also has a history of economic mismanagement and corruption, according a study by the European Centre for Economic Research.
The central bank has been pushing for reforms to try to reduce the country s debt burden.
However, there are many reasons why the country might not be able return to its former self.
The devaluation has led many to question the governments ability to deal with the crisis, and many Hungarians believe that the country may not be ready to tackle the economic problems that have plagued the country in the past.
“In a country where you have a lot of foreign investment and foreign direct investment, there is no reason for the central bank to intervene in the monetary policy,” says Kocsiks.
“They don’t have the funds to make the necessary adjustments.
That is the reason why we don’t feel the economy is going to recover as fast as we would like.”