ALL THE PRIME MINISTER'S MEN: WHO'S WHERE ON

C O N F I D E N T I A L SECTION 01 OF 02 BUDAPEST 001582

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E.O. 12958: DECL: 09/23/2017
TAGS: PGOV ECON KDEM PINR HU
SUBJECT: ALL THE PRIME MINISTER'S MEN: WHO'S WHERE ON
EFORM

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Classified By: P/E ERIC V. GAUDIOSI; REASONS 1.4 (B) AND (D)


1. (SBU) As reform continues to dominate the political
landscape, clearer divisions are emerging within the
governing coalition and among the party leaders.


2. (C) Within the government, Prime Minister Gyurcsany
remains most visibly associated with the package of reforms
that commonly bear his name. As his critics charge, his
background of prominence in the Communist Youth League (KIS)
and profit in early days of privatization makes him a curious
reformer. Whatever the depth of his commitment, his present
political straits have limited his freedom of action to a
range far less ambitious than his rhetoric would suggest.


3. (C) After a long period of relative quiet, that rhetoric
is now ramping up. Even as the PM is pledging "no new taxes"
in public appearances, his Chief of Staff, Zoltan Gal, tells
us that the government remains committed to reforming health
care, reining in the gray economy, and taking on pension
reform (which many regard as the third rail of Hungarian
politics).

THE INSIDE MEN


4. (C) Gyurcsany has relied on a close coterie of advisors
in developing his reform agenda, foremost among them Minister
without Portfolio Tibor Draskovics. Originally head of the
now-disbanded Government Reform Committee, Draskovics has
been consistently outspoken on reform. A former Minister of
Finance, he has recommended controversial measures to reduce
and reshape Hungary's bloated public sector. The government
has avoided these measures in large part with its focus on
raising taxes and reducing subsidies, but Draskovics has
continued to call for systemic changes in his new position.
Opposition sources believe that Gyurcsany was prepared to
retain a number of political rivals in his cabinet during the
most recent cabinet reshuffle in order to keep Draskovics.
Chief of Staff Gal described Draskovics as the one who puts
the cabinet's decisions into action. Corporate sources,
however, minimize the impact of Draskovics' efforts.


5. (C) Gordon Bajnai is another member of Gyurcsany's inner
circle on reform. As Minister of Development and head of the
National Development Agency, Bajnai oversees the National
Development Plan, the practical roadmap for the use of
European Union co-financing to continue on its path of
development and economic convergence. MPs in other parties
believe Bajnai may also be a future MSzP Prime Ministerial
candidate, but he, too, is regarded as limited in his ability
to affect change.


6. (C) Once a star among accession countries for its ability
to &absorb,8 or spend its assistance funds within the
European Union framework, Hungary is not faring as well with
the current, larger round of EU co-financing. With
absorption rates hovering around sixty percent, Bajnai heads
an organization that is struggling to process the twenty-four
billion euros the European Union has allocated for the next 5
years. They are proceeding in a way that maximizes the
political impact of the disbursements, with announcements
spaced out to keep the good news coming, but critics charge
that the Agency is putting too much EU funding into selected
and politically-motivated projects, including Budapest's
troubled mass transit expansion. Gal believes reforms to
date have been grudgingly accepted as part of everyday life,
but candidly describes the government's approach as a
calculated gamble that the visible influx of EU aid will
offset the political costs of reform. "What we want," he
remarked, "is for people to see a construction crane in every
community in Hungary."

THE ENFORCER


7. (C) After a successful year of imposing budgetary
discipline over his own ) and other ) ministries, Finance
Minister Veres is assuming a more prominent public role.
Veres has overseen, mandated, or coordinated most of the
GoH's increased enforcement actions that have resulted in
increased tax compliance and enhanced revenues from
enforcement, including the new requirements to control access
to health care. A common question among economic analysts is
whether Veres will venture too far beyond the MSzP mainstream
in his efforts to impose fiscal discipline in a system that
has always binged on spending prior to elections.

THE USUAL SUSPECTS


8. (C) When it comes to reform, many within the MSzP are
less enthusiastic ( or largely opposed. Corporate sources

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tell us that old-line party leaders including Speaker Katalin
Szili, Parliamentary Faction Leader Ildiko Lendvai, and
Minister for Cabinet Affairs Peter Kiss are at best resistant
to reform and at worst inextricably tied to "business as
usual." As one corporate rep warned, "they don,t speak our
language ) English or transparency." All three have
distanced themselves from Gyurcsany over the course of the
past year. Szili has openly challenged Gyurcsany's
leadership. Kiss' trademarks have been more subtle actions
and statements, even as he has taken on responsibility for
coordination between the coalition parties as a member of the
select "government cabinet," where issues are usually
decided.


9. (C) We sense on the part of Szili, Lamperth, and Kiss no
particular commitment to reform, contrasted with clear
concern over the impact of the austerity measures on the
party's political fortunes. We also sense that this watchful
waiting is the posture of a majority within the MSzP.

THE CONTENDER


10. (C) Defense Minister Imre Szekeres may bridge the gap
between the two factions. A long-time MSzP insider and
surprise choice as Minister of Defense, Szekeres has been an
enthusiastic reformer at the MOD (despite allegations of
involvement in corrupt practices within the MSzP),focusing
in particular on long over-due reductions in the officer
corps. As a vocal advocate of Hungary's presence in
Afghanistan and its bid to host the NATO Strategic Airlift
Consortium's base at Papa, Szekeres has raised his own
profile to the point of open press speculation regarding his
Prime Ministerial ambitions. A traditional Socialist now
with a proven record on reform at the MOD, Szekeres is a cagy
politician and might have broad appeal, but some question
whether his Jewish faith would be a disadvantage with
Hungary's voters.

THE OUTSIDER


11. (C) Minister of Economy and SzDSz President Koka
continues to press for reforms within the coalition,
particularly on health care (septel) and party finance
reform. His critics ) inside the party and out - argue that
his often highly-publicized efforts have been more about
getting attention than getting results. They also cast
doubts on the transparency of Koka-administered projects such
as the privatization of cargo operations for the Hungarian
railroad (MAV). For our part, we see a tendency to take
credit early and often. We also suspect that Koka will
continue to battle a credibility gap among the SzDSz's
liberal base and considerable personal enmity among many in
the MSzP. His attempts to wear the mantle of reform may well
be damaged by the failure of his lawsuit against a
publication which alleged his involvement with the diversion
of government funds to off-shore corporations.

WE'RE NO ANGELS


12. (C) Comment: The government's success to date has owed
as much to Veres' careful accounting as to Koka's sweeping
rhetoric. Hungary will need both ) along with a great deal
of EU assistance and even more luck ) to see its reform
agenda through to conclusion. Although Gal argues that the
Gyurcsany government "has no alternative but to follow
through," if you listen long enough in Hungary you will hear
allegations of corruption about everyone ... including many
who are involved in the current reforms. Moreover, Gal's
conclusion may not extend to a party that needs good
political news more than good policy decisions. End Comment.



FOLEY