KOKA IN COMMAND: ECONOMY MINISTER OUTLINES REFORM

C O N F I D E N T I A L SECTION 01 OF 02 BUDAPEST 000788 SIPDIS SIPDIS DEPARTMENT PLEASE PASS TO NSC FOR ADAM STERLING E.O. 12958: DECL: 05/14/2017 TAGS: PGOV PREL ECON ENRG SUBJECT: KOKA IN COMMAND: ECONOMY MINISTER OUTLINES REFORM AGENDA AND PARTY PROSPECTS REF: BUDAPEST 732 Classified By: P/E COUNSELOR ERIC V. GAUDIOSI; REASONS 1.4 (B) AND (D) ¶1. (C) A confident and conversant Economy Minister and SZDSZ party president Janos Koka outlined his views on the GoH's reform agenda and reviewed the SZDSZ party's prospects in a meeting with Ambassador Foley May 15. Koka cast his efforts to "rebuild the SZDSZ nation-wide" as a means to "complete the transition we started in the 1980s" while adjusting to "new challenges." He openly described "not tension but difficulty" in his relationship with Prime Minister Gyurcsany, whom he sees as hampered by low public approval ratings and helpless to control others within his own MSZP party (reftel). Koka wants "the momentum of reforms - and not the debate within the coalition" to be the story, and sees a one-year window to make progress on issues including health care, taxes, pensions, public administration, and transparency. Although he is optimistic, he cautioned that he would have "no interest" in remaining in the governing coalition without continued efforts toward that end. He has every interest - as do we - in making his upcoming trip to the US a success. End Summary. SZDSZ UNDER NEW MANAGEMENT ¶2. (C) Reviewing his agenda as SZDSZ party president, Koka underscored the importance of "rebuilding the party nation-wide" and "increasing our strength in parliament." Billing the SZDSZ as "the only real pro-market liberal party" in a political landscape dominated by "populists," he set the party's goal as "completing the changes we began in the 1980s." Although he noted polls reflecting public support for the party below 5%, he pointed out that "20% of the public lives a liberal lifestyle." He wants to expand the party beyond its current stronghold of Budapest and the surrounding counties, targetting "the Starbucks generation" and university students as a key demographic to help the SZDSZ reach its goal of a 10% share in the next national elections. Toward this end, he is working to bring new faces into the party leadership and to increase its profile on foreign policy issues. THE COALITION LANDSCAPE ¶3. (C) Responding to the Ambassador's question regarding the dynamic within the governing coalition, Koka readily �0A;acknowleged substantive differences with PM Gyurcsany's MSZP on health care, energy security, and transparency. He believes that "real life" demands that Hungary "address its energy dependency on Russia, simplify its tax code, purify its political life, and rationalize its public administration." He cited "not tension but difficulty" with Gyurcsany on these issues. ¶4. (C) But the real problem, he continued, lies not with Gyurcsany but with the rest of the MSZP. The majority of the party "feels threatened by reform" ... and the PM feels "too threatened by his low poll numbers" (the lowest of any post-transition Prime Minister) to contend with the MSZP's other power-brokers. For his part, Koka is confident "my party is behind me ... but I cannot solve the MSZP's problems." ¶5. (C) Koka's "fear and frustration" is that the government's hesitation over the next steps in the reform agenda will become the problem. Although he cited positive results in deficit reduction, employment, and exports and predicted that bold measures "will be accepted by the public," he warned that continued gridlock will "become the story" and risk losing the momentum established in the past year. Parliamentary Speaker Katalin Szili (MSZP),he suggested, had been wrong to suggest a period of "consolidation," expressing his concern that the governmentis moving "too slowly rather than too quickly." The GoH, he concluded, has only a "one-year window" to move forward and "cannot afford to blink," whether with Russia over energy security or with its domestic opponents over reform. ¶6. (C) If the Prime Minister is not willing (or able) to "make these strict decisions" to "finish what we started," Koka concluded, then "I have no choice but to be very strict" and "no interest in remaining in the coalition." RESOLUTE ON ENERGY SECURITY ¶7. (C) Turning to energy security, Koka commented that the recent Russian agreement with Kazakhstan and Turkmenistan BUDAPEST 00000788 002 OF 002 "doesn't kill Nabucco." He has tentatively identified September 14 as the date of the Nabucco conference in Budapest, and will invite "everyone with interest in the issue." He associated himself strongly with the pro-Nabucco statements made by Defense Minister Szekeres during his recent visit to Washington, and asked for our assistance in securing meetings for his own planned trip to Washington in late June so that he could continue to "work this issue." He specifically requested the opportunity to meet with Secretary Bodman, and we request the assistance of Washington agencies in making his trip a success. HOPEFUL ON TRANSPARENCY ¶8. (C) Koka reported that he had reached "full agreement" with PM Gyurcsany on party financing reforms and remains hopeful that legislation can be introduced with the participation of the opposition. He expressed his eagerness to "push forward" with the Transparency Working Group, and suggested that individual FIDESZ MPs are "committed to reform" but often shy away from overt cooperation with the diplomatic community and international business due to the party's "political marketing." (Note: This may be heightened on the eve of this weekend's FIDESZ party congress. End Note.) Nonetheless, he believes the issue is a "Hungarian" rather than a partisan one and remains ultimately optimistic regarding the chances of progress. ¶9. (C) Comment: Koka's enthusiasm is unbounded but as yet unproven. A strategic thinker and a sharp manager, even he will have his hands full rebuilding the SZDSZ as he rides herd over issues including energy reform and transparency. Although he evinced no personal animosity toward Gyurcsany, nor was he particularly empathetic about "his problems," reinforcing the view of many insiders that there is no longer a personal relationship to balance their respective political calculations (reftel). Koka's talk of taking the SZDSZ out of the coalition strike us as extreme for the moment, but he may see a readiness to do so - though likely under conditions that will not prompt new elections (reftel) - as the best way to focus the PM on the government's reform agenda rather than his own political survival. Describing himself as "a conservative liberal," Koka is clearly to the right of many SZDSZ members; he may see his efforts to bring the party to the center as political evolution in the face of political extinction. End Comment. FOLEY