Guns, property and art: that's not the shopping list of a gentleman gangster, but Hungary's central bank. However, fed up of explaining what it's doing with the nation's cash, the Magyar Nemzeti Bank will now be able to close its books to public scrutiny, according to new legislation.
Parliament passed on March 1 a bill submitted just the previous day by an MP from the ruling Fidesz party that raises the pay of top officials at the central bank. More controversially, the legislation hands the MNB discretion to withhold data from public scrutiny, in particular pertaining to its spending and the companies it owns.
The legislation raises the monthly salary of the MNB governor to a fixed HUF5mn (€16,150). The salary of the central bank chief was capped at ten times the average monthly wage of around HUF250,000 in 2012, as Fidesz sought to oust previous governor Andras Simor, who was replaced in 2013 by Gyorgy Matolcsy. The compensation of deputy governors is now capped at 90% of the governorʼs; members of the Monetary Council at 60%, reports MTI.
The bill also gives the MNB the power to withhold information on its companies, if it judges that dissemination would harm the interests of monetary or foreign exchange policy. Six educational foundations, which were granted HUF245bn in 2014, are now fully controlled by their curators, and so their assets no longer qualify as public assets ruled by the laws of public disclosure, the bill states.
Five star hotel for offshore barons
The bill was pushed through by Fidesz's large majority in parliament. Opposition parties reacted with fury, and threatened the ruling party that the country would find skeletons in the closet in the coming years. "These laws will go to the rubbish bin in 2018, and those who stole public money based on such laws will go to prison," spluttered Andras Schiffer, co-leader of the small green liberal opposition party LMP, according to Reuters.
Others place the move in part of a wider trend for the Fidesz government to close off scrutiny and make the workings of institutions under its control unaccountable. “It is not just the central bank of Hungary, but also the Hungarian Postal Service – both have been exempted from public scrutiny. They will have no more obligation to answer public data requests,” Mkilos Ligeti, head of legal affairs at Transparency International Hungary, tells bne IntelliNews.
“This is a disappointing day for friends of freedom of information in Hungary, as parliament has adopted two laws which throw major hindrances in the way to access public data," he claims. “These laws, voted with no prior public consultations, virtually enable the two institutions to hide their business data, which sends the management of their assets, amounting to hundreds of billions of forints, into opacity. This is a major slide on a slippery slope at the bottom of which one finds total secrecy of public investments."
"After his 2010 election, the prime minister stated that the central bank would not be controlled by "offshore barons" under his government. However, now they [have passed a law that will] transform the central bank into a five star hotel for offshore barons," Bernadett Szel, co-chair of LMP, claims to bne IntelliNews.
The new law will also free the central bank from declaring details on the finances of the Budapest Stock Exchange. The MNB took control of the struggling bourse late last year, and hopes to develop it to play a major role in the economy. There are plans to list several large state companies over the next couple of years, as well as a host of small and medium-sized enterprises. The BSE will "work closely" with financial advisers and brokerages to bring companies to the bourse, Balazs Bozsik, head of marketing at the BSE, told bne IntelliNews in late February.
In a statement issued late on February 29, the central bank insisted the disclosure rules for MNB foundations will approach standards used for other foundations. The main relevant data will still be available in public registers and the foundations will disclose all of the most significant operational information, the central bank added.
The MNB will continue to fulfill all of its information disclosure obligations and provide information from Parliamentʼs economic committee to the public, to its supervisory broad, to its internal management directorate and to the State Audit Office (ÁSZ), the central bank said.
The MNB posted a record profit of HUF95bn (€309mn) in 2015, despite a spate of purchases – mainly of property and fine art – over the past couple of years. Critics point out that the funds are public, and that should the MNB record a loss, Hungarian taxpayers would have to foot the bill.
Under the stewardship of Governor Matolcsy, the MNB has through its foundations spent millions of euros on real estate and fine art that it claims is part of Hungary's national heritage. The spending spree hit the headlines again in early February when it emerged the central bank had bought a cache of guns and ammunition for its security force, according to documents posted on a public procurement website.
Additional protection is needed due to the rise of "international security risks" including bomb and terror threats and migration, Matolcsy said in a written response to a lawmaker who asked about the purchases, which was posted on the parliament website. An application to the courts by a Socialist MP demanding details on contracts worth HUF200bn (€650mn) from one of the MNB's foundations sparked the March 1 bill, according to reports.
In MNB we trust
The move is perhaps distrubing for Hungarian taxpayers and the public purse. But banks and investors, who remain focused on the MNB's oversight of monetary policy and the financial sector, appear to be more comfortable with the central bank these days.
Analysts in Budapest say they are now starting to believe the economic recovery in Hungary is sustainable thanks to the country's vastly lowered vulnerability to global shocks. The MNB has played a fundamental role via monetary policy and improvement of the structure of state and wider debt.
At the same time, the policy and independence at the MNB remains a potential issue, as does its growing control on the economy. The purchase of full control of the Budapest Stock Exchange late last year came in the wake of a 2014 takeover of financial market supervision, handing Matolcsy even more power. That he will now be able to operate without full public scrutiny is clearly a challenge to transparency and conventional practice in Europe.
However, Vice Governor Marton Nagy claimed to bne IntelliNews recently that the market is now starting to understand the approach of the government and MNB, as yields show. "The market agrees we are very creative," he said, smiling. "It's a question of trust, and that's coming."
Matolcsy, who was the original architect of the unorthodox economic polices of the Fidesz government as finance minister until taking over at the MNB, appears increasingly confident that his methods are justified – in similar fashion to his mentor Prime Minister Viktor Orban. The MNB governor has never been one to hold back from insisting he should be free to try to at least redesign – if not reinvent – the wheel.
One senior analyst in Budapest, however, tells bne IntelliNews that Matolscy – who asserts he has the right to spend central bank cash as he sees fit – enjoys playing the maverick. Vice Governor Nagy, the analyst claims, is the real brains behind MNB policy.
If true, just what the uses the vice governor has planned for the central bank's cash will now be less clear than before. Nagy suggests that whatever the destination, it will likely be guided by Fidesz officials. "Independence of the central bank means inflation targeting and financial sector stability," he states. "The rest of the time the MNB can support the government."