Banking on Janos Fekete. Even capitalists trust Hungary's financial whiz
Budapest — When the communist world needs to deal with capitalist bankers, it calls on Janos Fekete. Mr. Fekete represents the East bloc at such international financial gatherings as the recent Davos conference in Switzerland. As first deputy president of the Hungarian National Bank, he helped design Hungary's market-oriented economic reforms and integrate his country, more than any other communist state, into the Western financial system.
``Whether you're a capitalist or communist, a dollar is a dollar,'' the banker said during one of two talks over the last year with the Monitor.
He could pass for a Western bank chairman, his gray hair carefully groomed, his elegant blue suits well tailored. In his plush office, filled with tapestries and antique furniture, he says, ``Bills must be paid.''
But these days, the communist banking whiz is finding it harder to pay his bills. Stung by Eastern Europe's debt crisis in the early 1980s, Western bankers are wary about renewing large-scale lending to the East.
Hungary's situation is delicate. Despite its reputation in the West as the most prosperous, adventurous East-bloc society, its economy is sagging, with a negative trade balance and a soaring foreign debt. Largely thanks to Fekete, observers say Hungary has been able to keep its credit lines open to the West.
``Fekete gives Western bankers confidence,'' says Irene Ruffin, an East European specialist at the French Institute of Foreign Relations. ``That trust helps Hungary retain its good credit rating even though the economy is in bad shape.''
Fekete's golden reputation is based on style, personal relationships, and of course, results. When East Europe's debt crisis exploded at the beginning of the decade, Fekete cut imports and haggled emergency loans from the International Monetary Fund. Hungary managed to avoid a Polish-style collapse.
``Central bankers are like a mafia,'' says Fekete. Happy with his metaphor, he breaks into one of his frequent grins, and adds, ``When our reserves were dropping, my friends helped me because they knew my word is good.''
Such charm and showmanship set him apart from other communist bankers.
``Russian and other East European bankers are technicians who talk in a stilted, wooden way,'' says Gerard Wild of the Paris-based Center of International Studies. ``Fekete comes out of the old Austro-Hungarian financial tradition and uses the language of Western finance.''
Born in Budapest, he started his career in 1936 at the National Savings bank in Szarvas, a small town in southeastern Hungary.
``I was trained as a capitalist banker,'' he recalls, ``and I learned a lot from capitalist bankers.''
Communism also attracted him. Of Jewish origin, he admired communism's pledge to make everyone, whatever their religion, equal. Joining the Communist Party in World War II, he escaped to the Soviet Union, avoiding anti-Semitic and anti-communist persecution. From 1942 until 1945, he fought in Soviet units against the Nazis.
Both his long communist history and his flexibility have helped deflect criticism of his policies. When Hungary's debts rose to a worrying $8 billion in 1982, party leaders worried about becoming too dependent on Western bankers. Fekete assured them - with a white lie.
``He told the party men not to worry, because Hungary had $3 billion worth of gold reserves,'' says Professor Charles Gati of Columbia University. ``Eight billion debts minus 3 billion in goals means the total debt is only 5 billion.''
In Western accounting terms, the subtraction is meaningless, and Hungary's debt remained at $8 billion. But the country's leaders stuck by him and continued Hungary's pro-Western open-door policy.
Fekete laughs when he hears the story. Though he doesn't deny it, he stresses that no tricks can hide Hungary's worsening trade squeeze. The country is squeezed from the East by the new Soviet regime, which is insisting on the delivery of better quality goods as well as demanding a more realistic price for Soviet oil. From Western and other capitalist countries, it is squeezed by weak agriculture prices and increasing Asian competition. So far, Fekete has managed to cover up the losses only through increased borrowing, letting the country's overall debt rise to more than $11 billion.
An even more painful squeeze comes from the market-oriented reforms themselves. While a few lucky rich are profiting, inflation is rising and the majority of Hungarians find their standard of living plummeting. In order to make its economy more efficient, Fekete says Hungary must swallow more competition. Party hard-liners disagree. For them, more competition means more inequality, even bankruptcies and unemployment.
Confronted by these pressures, the banker is responding like a tightrope walker struggling to keep aloft. He lauds a bankruptcy law that went into effect last fall, but admits that no companies have yet gone bankrupt. ``The idea is not to drive companies out of business,'' he insists. ``It is just to put them on guard.''
Fekete also champions new financial reforms. A bond market now is operating in Budapest, foreign banks such as Citibank have opened branches, and on Jan. 1, the Hungarian National Bank relinquished its monopoly on loans and savings accounts as 20 other banks opened their doors in competition. But don't expect companies to issue shares or private banks to be established.
``Selling stock would violate socialism by selling the means of production,'' Fekete says. ``We don't want to change our social system, just to make it more efficient.''
That goal represents a tough balancing act. Though a man as talented and experienced as Fekete may be able to pull it off, he is 68. Some Hungarian officials and Western financiers talk of his retiring.
``I hope Fekete stays in power for a long time,'' says Ruffin of the French Institute of Foreign Relations. ``Hungary is facing tough times, and more than ever, it needs men like Fekete.''