WITH ALL DELIBERATE SPEED: CABINET MINISTER KISS

C O N F I D E N T I A L SECTION 01 OF 02 BUDAPEST 001214

SIPDIS

SIPDIS

DEPARTMENT PLEASE PASS TO NSC FOR ADAM STERLING

E.O. 12958: DECL: 07/26/2012
TAGS: PGOV ECON HU
SUBJECT: WITH ALL DELIBERATE SPEED: CABINET MINISTER KISS
AND THE QUESTIONABLE COMMITMENT TO REFORM

Classified By: P/E Counselor Eric V. Gaudiosi, Reasons 1.4 (B) and (D)


1. (C) Summary: Cabinet Minister Kiss met with Ambassador
Foley and DCM July 25 to review the state of playing on the
government's reform agenda. Kiss embraced the challenge of
improving dialogue on the issues, professing confidence in
the recent coalition agreement and downplaying friction both
in the coalition and within the MSZP itself. He outlined a
"step-by-step" approach on health care and tax reform, but
Kiss' reputation - and his rivalry with PM Gyurcsany - give
us minimal confidence that the government will move quickly
on further reforms.

THE SMILING WHIP


2. (C) Referring to his recent return to being the
"government's smiling whip" as Minister for Cabinet Affairs,
Kiss readily conceded that his job presents "an enormous
challenge." He had returned to the Prime Minister's Office
(PMO) "despite warnings from my friends," but projected
confidence regarding the government's ability to move forward
in "stabilizing governance" by providing "more detailed
directions" on issues ranging from health care and party
financing to environmental protection and economic
development. On health care, he reiterated the government's
goal of having the law introducing a public-private system
enacted by mid-September to enter into force by January, 2009.


3. (C) Overall, Kiss hopes to focus the government "less on
talk and more on solutions." He described the Ambassador's
reference to popular skepticism as "very mildly put,"
conceding that the public has "many - and often legitimate -
negative sentiments." He recognized the significant
political risks of "uncertainty" through 2008 as the 2009
European Parliamentary Elections approach.


4. (C) But, he continued, the government's road map
represents "the fastest track possible." He believes public
confidence will be buoyed by growing recognition of the
convergence plan's success, a visible infusion of EU
development assistance to localities, and the intrinsic
benefits of reforms. He advised that the government had
finalized plans re the allocation of the first tranche of
development assistance earlier in the day by earmarking 500
million HUF for various projects. Kiss noted that the
government will continue to announce further funding
decisions "every two weeks." (Note: the projects announced
include high visibility museum renovation and tourism
promotion. End Note.)


5. (C) Turning to the opposition-sponsored referendum, Kiss
accentuated the positive, maintaining that the process should
offer the opportunity to "really debate the issues" and "make
course corrections as necessary." He framed the referendum
in the context of his commitment to "less talk; more
dialogue," hoping that the process of debate would highlight
areas of consensus as well as conflict. In his view, the key
will be shifting the public conception of the referendum from
a vote of confidence in the government to a focus on specific
issues.


6. (C) Kiss' views contrast with public statements made by
Gyurcsany, who insisted July 25 that the referendum "will not
change" reforms in health care and education in that the
government would merely identify revenue sources other than
public fees.

TAX REFORM: PLAN NOW; PAY LATER


7. (C) On tax reform, Kiss commented that the government
would turn from a near-term focus on "simplifying the system
and whitening the economy" to "restructuring the system and
focusing on employment and competitiveness.". He hopes the
tax reform proposal will be adopted this fall and implemented
in 2009-2010.


8. (C) The government will also take this "two-step
approach" on administrative reform, focusing first on the
ongoing reform of the educational system to promote
competition and focus on the individual customer through a
result-based process.

THE COALITION: THE RABBIT CARRIES THE GUN


9. (C) Responding to the Ambassador's question regarding the
unity of the governing coalition, Kiss joked that the SzDSz's
current disproportionate influence on the government was much
like "the rabbit carrying the gun." He attributed much of
the recent friction to the "inexperience" of the party's new
leadership and its desperate need to differentiate itself

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from the MSZP to stave off "extinction" in the next
elections. As he has in recent (and rare) public statements,
Kiss took the high road, commending the SzDSz's
"unquestionable commitment to liberty and modernity" and
remarking that the senior coalition party must accept
responsibility for "the coalition and the country." In the
near term, Kiss predicts that the SzDSz will retain the
Ministry of Economy even after Koka's departure.

THE MSZP: DISCIPLINED DIVERSITY?


10. (C) With respect to the dynamic within the MSZP, Kiss
commented that "diversity is good ... but we remain
disciplined." (Comment: He is unconsciously echoing remarks
made by FIDESZ leader Viktor Orban, who frequently notes the
MSZP's traditional ability to close ranks. End Note.) If
the government is to ask for societal consensus, he
continued, it must set a good example of soliciting
alternative viewpoints.


11. (C) That said, Kiss believes that "our program will
survive our current poll numbers." Recalling the Horn
government of the mid-90s, Kiss believes the present
coalition is more united and similarly capable of rebounding
from historic lows in popularity. "We have been written off
before," Kiss recalled, asserting that the government is
capable of dealing with its present challenges. "So many
simultaneous changes would be difficult to digest even if we
had done everything right," he concluded, "and we obviously
have at least 12 months hard work ahead of us."

THE HUMAN FACTOR


12. (C) Commenting on his own personal relationship with PM
Gyurcsany, Kiss recalled their long acquaintance and
commended Gyurcsany's sharp - but impulsive - intellect. "He
wants to win every fight," Kiss commented, "even the ones
that aren't there." "But," he continued, "the party does not
want the PM to be left alone." Kiss will accordingly "give
it a chance," but closed with the cryptic remark that he
"hopes Hungary will show a better face than it is now."

COMMENT: REVENGE OF THE APPARATCHIKS?


13. (C) Kiss is a good diagnostician but a suspect surgeon.
He is correct in noting the importance of a more coherent and
consultative approach to reform, as many of the government's
initiatives have been imposed by virtual fiat only to be
revised or reversed in practice. With his reputation as a
sharp administrator and political insider, Kiss might be able
to ride herd on the ministries (and the sprawling PMO
itself). But the herd is barely moving, and Kiss is a
curious choice to light a fire under the stalled reform
process. As one Ambassador here commented with regard to
Kiss' reputation as a "consummate apparatchik," he is
"awfully young to be so old." Other MSZP power-brokers tell
us their approach is to "do nothing that might get the people
stirred up," and Kiss seems more focused on deliberation than
on speed. Indeed, senior corporate representatives here are
"underwhelmed" by the government's progress in delivering on
its commitments to improve the business climate, and describe
Kiss in particular as "genetically opposed to reform." The
coalition agreement which he cited repeatedly is already
under fire from both SzDSz and MSZP Parliamentarians, and the
referendum he passed off as a chance to engage in dialogue
may actually give Kiss his chance to rationalize a further
slow-down on reform ... and perhaps a fast move to replace
Gyurcsany. End Comment.
FOLEY