GRAY AREA; DARK HORSES: GOVERNMENT RESTRUCTURING

C O N F I D E N T I A L SECTION 01 OF 02 BUDAPEST 000442

SIPDIS

SIPDIS

DEPARTMENT FOR EUR/NCE; PLEASE PASS TO NSC FOR ADAM STERLING

E.O. 12958: DECL: 04/27/2013
TAGS: PGOV KDEM PINR HU
SUBJECT: GRAY AREA; DARK HORSES: GOVERNMENT RESTRUCTURING
FOLLOWS SZDSZ DEPARTURE

REF: BUDAPEST 401 AND PREVIOUS

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

INTO THE GRAY AREA


1. (SBU) With the overwhelming vote of the SzDSz's national
committee on April 27 confirming the party leadership's
decision to leave the governing coalition, Hungary has
entered the uncharted waters of minority government.

SzDSz: GOING, GOING, GONE


2. (SBU) With some discussion but reportedly little real
debate, 84 percent of the SzDSz national committee members
voted to leave the governing coalition at this weekend's
meeting. A proposal to delay a decision until after the
party's June 7 presidential elections was voted down, albeit
by a much narrower margin, and the party is expected to
formally sever its coalition relationship at a meeting of its
parliamentary faction on April 28.


3. (C) The SzDSz meeting may also have marked the beginning
of its own party election campaign. Despite Party President
Koka's appeal for an "internal coalition" to preserve the
party's unity, (soon to be former) Environment Minister Gabor
Fodor gave what many attendees regard as a campaign speech
for the party presidency, calling for the party to broaden
its appeal to both the right and the left.

MSzP: WHO GOES THERE?


4. (C) The government has downplayed the significance of the
SzDSz's departure, maintaining the public line that
cooperation between the MSzP and SzDSz will continue "in
parliament if not in government." Indeed, SzDSz official
Gabor Horn openly stated at this weekend's meeting that the
party's goal is ) much like many Socialists' objective )
"preventing FIDESZ from winning a two-thirds majority in the
next elections" (reftel). In his address to Parliament April
28, Koka committed the SzDSz to "constructive opposition" and
shook Gyurcsany's hand at the conclusion of his remarks. In
a private conversation afterwards, SzDSz MP Matyas Eorsi
looked back more in sorrow than anger, telling us afterwards
that "the coalition began so well" but could not survive
"Gyurcsany's one-man show."


5. (C) The government moved swiftly in response to the
SzDSz's decision, meeting late into the night on April 27 to
"restructure" the government. In public remarks April 28, PM
Gyurcsany announced the following changes "to better advance
the government's agenda":

Long-time Gyurcsany associate Gordon Bajnai will take over a
new Ministry of National Development and Economy. This will
give the highly-regarded Bajnai broader influence over
economic issues, as he will reportedly take elements of his
current responsibility for coordinating EU Development Funds
with him from his present position as Minister for Local
Government Affairs. Although his bureaucratic empire still
appears to fall short of the Economic "Super Ministry" many
had predicted, Bajnai's name continues to circulate as a
potential Prime Ministerial candidate.

Pal Szabo, Director of the Hungarian Postal Service (the most
highly-respected public institution in Hungary according to
opinion polls),will head a new Ministry of Infrastructure.
The new Ministry will take over many of the
transportation-related tasks formerly vested in the Economy
Ministry - likely among them dealing with Hungary's restive
transport unions ) as well as IT and energy. At Magyar
Posta since 2002 and former head of the Hungarian
Privatization Agency in the mid-90s, Szabo is a long-time
administrator with experience overseas (including in Iraq in
the early 80s). MSzP Party Treasurer Laszlo Puch, frequently
identified as the MSzP's money man, will reportedly be
Szabo's State Secretary.

Tamas Szekely, an apolitical expert, will replace the SzDSz's
Agnes Horvath as Minister of Health, whose oversight of
health care reform had her at the bottom of most popularity
surveys. Szekely's stature should give the government a
degree of political cover in revisiting the issue.

Erika Szucs, a first-term MSzP MP and Vice-Mayor of Miskolc,
is the new Minister of Social Affairs. Szucs, a relative
unknown but a member of the board of a Gyurcsany-owned
company, replaces MSzP fixture Monika Lamperth, who will
reportedly be given a position managing the party's
day-to-day operations. This is widely seen as a demotion for

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Lamperth, and some commentators believe her removal indicates
that Gyurcsany is more confident of his position within the
party.

Imre Szabo, one of the MSzP's deputy faction leader and head
of the Pest County MSzP, will serve as Minister of
Environment. A former gym teacher, Szabo is little-known
outside the party but has worked on environmental issues
within the MSzP and is the Secretary-General of the Hungarian
Nature Lovers Association.

Istvan Gyenesei, an independent MP formerly a member of the
MSzP, will take over responsibility for local government
affairs ( and presumably assure the government of his
support in Parliament at a time when every vote counts.

Karoly Molnar, a professor since 1967 and long-time rector of
the Budapest University of Technology, will be responsible
for coordinating research and development issues as Minister
without Portfolio.

ADVISE AND CONSENT


6. (C) The new restructuring will represent the first test
of the MSzP's ability to govern in minority. The new
arrangements will require Parliamentary approval, confronting
the SzDSz with a decision whether to support the government
from outside ( or to let it suffer a defeat many will see as
a de facto confidence vote. Eorsi indicated strongly to us
that the SzDSz will not contest the government's
appointments, and Andras Keszthelyi of the Prime Minister's
Office (himself a former advisor to the SzDSz) tells us that
an informal agreement is already in place to secure the
SzDSz's concurrence. Other SzDSz MPs, however, have noted
that the party's support for the restructuring should not be
"taken for granted." Even if the restructuring is approved,
both FIDESZ and the MDF are already calling for the Gyurcsany
government to submit to a formal vote of confidence in
Parliament.

CHANGING (DARK) HORSES


7. (C) Comment: The government has been focusing its
rhetoric on economic growth, and the reshuffle does put a
heavy bureaucratic emphasis on development. But the key
words might be heavy and bureaucratic. Outgoing Minister of
Economy Csaba Kakosy told Ambassador Foley, "someone is under
the misconception that organizational changes will solve
reforms." He predicted at least a 2-month hiatus to digest
the chnges. Although the proposal brings in known
quantities, political appointees, and outside experts,
criticism may target the institutions more than the
individuals. By shifting responsibilities significantly
while leaving the lines of coordination unclear, the proposal
could well make Hungary's already daunting bureaucracy even
less efficient. Following an early morning meeting with
Bajnai, Finance Minister Veres told the Ambassador that the
MSzP will continue to press for "modest reforms" in health
care, education, pensions, and public administration
(septel),relying heavily on EU funds. These intentions
notwithstanding, critics point out that the restructuring
could well add layers rather than value. End Comment.


Foley