Economy 20 April 2022, 1:15pm

Hungary sinks deeper into hybrid regime status - Freedom House

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Freedom House has published its 2022 Nations in Transit Report, classifying Hungary as a transitional or hybrid regime, with its Democracy Score down to 3.68 from 3.71.

Hungary's democratic backsliding

The European Commission notified Hungary earlier this month that it is triggering the conditionality mechanism over rule of law breaches, including rampant corruption, opening the door to financial sanctions.

A deterioration in governance standards that undermines investor confidence is a negative rating sensitivity for Hungary,

Fitch Ratings said in response to the EU procedure and Orbán’s election victory that “extends tensions with the EU over the rule of law and the associated uncertainty over receipt of EU funds.”

EU recovery funds are not expected to be transferred for the foreseeable future, but they are concerned in Brussels that with the new political mandate the Hungarian government will start blocking joint EU decision-making, according to Reuters analysis of the situation, which quoted unnamed Brussels sources.

Hungary’s Democracy Index score has dropped from 6.63 in 2019 to 6.56 in 2020, the Economic Intelligence Unit said in February 2021. Hungary remains tied for 55th in the global ranking and has lost one place in the regional ranking.

Hungary should no longer be considered a democracy after an unprecedented consolidation of power, according to the 2020 Nations in Transit Report.

Hungary is a hybrid regime

A hybrid regime means, by definition, that elections are held in the country, but democratic institutions are fragile and political and civil liberties are not always respected as a result.

This year, for the first time in the 21st century, the prevailing form of governance in the Nations in Transit region is the hybrid regime (11 vs. 4 in 2004). Four democracies have fallen into this grey zone since the unbroken period of democratic decline began in 2004: Hungary, Montenegro, North Macedonia, and Serbia. During the same period, three authoritarian regimes made democratic strides and joined the ranks of hybrid regimes: Moldova, Kosovo, and now Armenia. Consequently, the number of democracies is down at 10 from 14, while there are 8 authoritarian regimes left, versus 11 in 2004.

While these regimes combine elements of democracy and authoritarian rule, they are analytically distinct from both. They may be democratic in the minimal sense that they feature regular, competitive elections, but their dysfunctional institutions are unable to deliver the definitive components of a liberal democracy: checks and balances, the rule of law, and robust protections for the rights and liberties of all,

the report says.

"The ranks of hybrid regimes have been swollen by elected leaders in erstwhile democracies who abandoned any commitment to liberal democratic principles in their pursuit of a de facto monopoly on power.

“Prime Minister Viktor Orbán of Hungary exemplifies this trend, and he has worked actively to propagate likeminded governments across Central and Eastern Europe. Still playing the good democrat, he allowed competitive elections on April 3 of this year, but he and his Fidesz party pressed the entire state apparatus—along with the politically captured bulk of the civic and media sectors—into service against the opposition."

The vote was consequently not free, let alone fair. Now that Orbán has survived it, he is likely to give full vent to his illiberal and kleptocratic tendencies.

Much the same could be said of President Aleksandar Vučić of Serbia, who, along with his Serbian Progressive Party, swept that country’s April 3 elections.

The report adds that both men are following the ignoble path blazed in the 2000s by the governments of President Milo Đukanović of Montenegro and former prime minister Nikola Gruevski of North Macedonia, which “dispensed with liberal norms by bribing voters, wiretapping opponents, and resisting any mechanisms of transparency or accountability that might have interfered with the corrupt and opaque exercise of power.”

Gruevski was sentenced to two years for corruption in connection with the purchase of a government Mercedes, but Gruevski fled northern Macedonia in 2018 to escape conviction. Having good relations with the Orbán government, the former prime minister was eventually granted asylum in Hungary, and has also set up a company. The U.S. Treasury Department announced last week that sanctions will be imposed on Gruevski.

As regards Hungary’s ratings, the Independent Media rating declined from 3.25 to 3.00 due to the surveillance of journalists with Pegasus spyware as well as the shrinking space for independent, critical media illustrated by the loss of Klubrádió’s frequency and a court decision infringing on a journalist’s freedom of speech.

As a result, Hungary’s Democracy Score declined to 3.68 from 3.71.

This means that, according to Freedom House indicators, democratic standards are better in Albania (3.75), North Macedonia (3.82), Montenegro (3.82) and even Serbia (3.79) than in Hungary.

Highlights of the report

National Democratic Governance – 3.00/7.00

The governing parties continued to syphon public funds from state coffers through the reform of higher education institutions and the establishment of asset-management foundations.
Local governance was undermined through continued tax cuts, reallocations to the state budget, a tax break introduced by decree, and politically motivated distribution of compensations.
In July, the investigative portal Direkt36 revealed that about 300 Hungarian citizens, including journalists, lawyers, and even former state officials, were targeted with Pegasus spyware produced by the Israeli NSO Group. Forensic investigations could not confirm who used the spyware.
Through an amendment passed by the governing majority in November, the Hungarian Atomic Energy Authority (OAH) was removed from public control and thus gained independence from future governments. The new director was nominated by Prime Minister Viktor Orbán in September to lead OAH for a nine-year term beginning in 2022.
The LGBT+ community remained the key target of the government’s ideological agenda.

Electoral Process – 4.25/7.00

An amendment of the election law adopted in November, which changed the legal definition of “residence,” removed legal obstacles to “vote tourism” and could facilitate electoral fraud. Residence is now understood as a person’s contact address.
Political advertising is also problematic.
Orbán spared no expense during this April’s parliamentary elections, drawing liberally from the state’s coffers to shower voters with subsidies, underwriting a vituperative smear campaign against the opposition in public and progovernment media (a distinction without a difference), cajoling pensioners and public-sector employees to vote for the ruling Fidesz party, and using his legislative supermajority to legalize other forms of electoral manipulation. For his efforts, he secured a fourth consecutive term.

Civil Society – 4.25/7.00

Although the CJEU ruled in June 2020 that the so-called Lex NGO was in breach of European law, the withdrawal of the law took until May and was only carried out after a warning from the EC to comply. The law, adopted in 2017, required NGOs to register as “organizations funded from abroad” if they received financial support from non-Hungarian donors above a certain amount. While the Lex NGO was withdrawn, a new NGO law was passed according to which the State Audit Office (SAO) is required to audit NGOs with an annual budget of more than 20 million HUF every two years since they now are considered “civic organizations engaging in activities likely to influence public life.”
In November, the CJEU ruled that the so-called Stop Soros law adopted in 2018 is in breach of EU norms. The law, whose primary target was the Hungarian Helsinki Committee, criminalized providing assistance to asylum seekers in making their claims, with penalties including imprisonment. The government had not withdrawn the legislation as of year’s end.
Negotiations between Norway and Hungary ongoing since 2016 over the allocation of the European Economic Area (EEA) and Norway Grants scheme ended without a resolution in July. The parties could not agree on how and by whom grants to CSOs—a mere 4 out of 77 billion HUF—should be administered. Donor countries insisted that the funds should be distributed by an independent consortium selected in an open tender, which the Hungarian government rejected. Consequently, Hungary lost out on the entirety of the funds. The conflict over the grants goes back to 2014 when the government demanded oversight of the grant distribution and put NGOs in the distributing consortium under investigation, thereby marking the start of the ongoing attacks on civil society.
The withdrawal of the amendment to the Higher Education Act, which became known as Lex CEU, came only after CEU had already been forced to move its academic programs abroad.

Independent Media – 3.00/7.00

The Hungarian media landscape continues to be dominated by progovernment media outlets operating under the umbrella of the Central European Press and Media Foundation (KESMA); meanwhile, the public media fail to fulfill their public-service function, as the indirect and partisan reporting on the 2021 opposition primaries aptly illustrated.
Access to information of public interest remained restricted under the state of danger in 2021.
Several investigative journalists and businesspersons—like Zoltán Varga, CEO of the Central Media Group and owner of the news site 24.hu, and Zoltán Páva, publisher of the government-critical site Ezalényeg.hu—were covertly surveilled with Pegasus spyware between 2018 and 2021, raising concerns about the abuse of surveillance for political purposes.

Local Democratic Governance – 4.24/7.00

Municipalities in Hungary continued to face financial losses due to revenue reallocations the government introduced in response to COVID-19.

Judicial Framework and Independence – 4.25/7.00

The practice of political appointments at the Curia (Hungary’s highest court) continued under Zsolt András Varga, appointed for a nine-year term as Curia President.
The Committee of Ministers of the Council of Europe raised concerns about the continued lack of safeguards against the arbitrary removal of judges and the resultant chilling effect on the freedom of expression of judges. The concerns remain unaddressed.

Corruption – 2.75/7.00

According to the April 2021 report by the Group of States Against Corruption (GRECO), Hungary remained noncompliant with the majority of GRECO’s recommendations, implementing only 5 of 18 in full and 4 in part concerning corruption risks in the judiciary and the parliament.
The latest annual OLAF report recommended the repayment of 2.2% of all EU structural and agricultural funds spent in Hungary between 2016 and 2020 due to evidence of misuse, which remains the highest rate among EU member states.
Transparency International’s 2021 Corruption Perceptions Index ranked Hungary in 73rd place among 180 countries surveyed, four places lower than the previous year. With this rating, Hungary is next to last in the EU, with only Bulgaria receiving a worse ranking.
After the non-transparent purchase of ventilators in 2020, the procurement of Russian Sputnik V and especially Chinese Sinopharm vaccines raised legal and financial concerns in 2021.
Lack of transparency in international investments also continued in 2021. In April, government plans were revealed to contract a Chinese state-owned company to construct Europe’s first Chinese university campus, that of the Shanghai-based Fudan University, using a €1.25 billion loan from the China Development Bank.
In October, a court ruled that the classification of the Chinese-Hungarian loan agreement regarding the 750 billion HUF ($2 billion USD) modernization of the Budapest-Belgrade railway (passed in 2020) was unjustifiable, and in the absence of credible grounds for the classification, it must be made public. The court ruled in November that project contracts over 5 million HUF signed by the Chinese-Hungarian Railway Nonprofit Ltd. (responsible for implementing the investment project) must also be made public. No contracts were published by year’s end.
The case of a six-kilometre railway investment project in Budapest won by a company belonging to Lőrinc Mészáros, Prime Minister Orbán’s long-time friend, illustrates the continued corruption risk in public procurements posed by business circles close to the government. The project, which experts estimate should cost from 30 to 50 billion HUF, may become Hungary’s most overpriced infrastructure development to date, as the company won the open tender with a 338 billion HUF offer.
Beyond the syphoning of state assets to newly formed asset-management foundations operating universities (led by progovernment figures), the governing parties also used concessions to ensure their business circles’ long-term control over financial assets even in the event of a change of government. (Casino concessions, 35-year concessions for the construction and operation of motorways and public roads, and the operation of waste management.)