Hungary's government closes ranks as pressure on central bank head mounts

Hungary's government closes ranks as pressure on central bank head mounts
Hungary's central bank wants to hide what it spends
By Blanka Zoldi in Budapest April 26, 2016

A bill amendment that would allow companies launched by the Magyar Nemzeti Bank’s six foundations to close their books to public scrutiny was passed by the Hungarian Parliament on April 26. The approval came despite mounting pressure on MNB Governor Gyorgy Matolcsy, featuring calls for his resignation over the spending of the foundations.

The passage of the bill suggests the growing concern that the central bank has been handing out money to friends and relatives of the ruling Fidesz party is not likely to threaten Matolcsy, who has previously been described as the right hand man of Prime Minister Viktor Orban. On the contrary, the new MNB bill amendment, if signed by the president, will double the governor's salary and allow the central bank to keep a chunk of its spending secret.

The six charitable foundations received HUF245bn (€790mn) in 2014 from the MNB to promote financial literacy and conduct economic research. Public attention has been attracted by frequent purchases of real estates, artworks and guns over the past two years.

The foundations then sought to move the spending behind close doors. The first version of the MNB bill claimed that funds transferred by the central bank to its foundations "lose their public nature" and would have allowed the closure of the foundations’ books to public scrutiny. However, it was ruled unconstitutional on March 31, after the president refused to sign it in a rare show of independence.

On April 22 the foundations published a list of the contracts and grants they have agreed, sending more skeletons falling from the MNB closet. Around HUF20bn was spent without announcing public procurements. A significant amount of funds was granted to relatives and friends of Orban and Matolcsy.

Since the launch of the foundations in 2014, HUF501.4mn (€1.6mn) was granted to New Wave, a media company that is reportedly owned by Tamas Szemerey, cousin of Matolcsy and the publisher of the news website. A dozen of journalists have since resigned, claiming that they were not aware of the source of the newspaper’s funding.

The foundations spent HUF9.1bn on purchasing real estate. The son-in-law of one of Orban’s closest friends, Lorinc Meszaros was paid HUF3.7bn to refurbish three of these buildings. Allocations also included HUF87mn for the translation of a book written by Matolcsy’s former chief of staff.


The small opposition parties Egyutt and DK have announced that they have both filed a complaint for misappropriation of funds. They have also called for the resignation of Matolcsy. However, as the parliament illustrated on April 26, that looks very unlikely, not least because it would suggest acknowledgement of a wider system of corruption.

“It is very characteristic of Fidesz: the bigger the corruption scandal, the tighter the party will hold the hand of those involved," Robert Laszlo, an analyst at the Political Capital Institute claims to bne Intellinews. "If Fidesz acknowledged even one of the scandals, the whole system would crack and they would not be able to claim any more that the opposition is always wrong."

At the same time, coming on top of the current pressure on the government from protests concerning the education and health sectors, uncomfortable questions over the spending could come back to bite Fidesz in the long run. "Corruption scandals act as slow poison," says Laszlo. "Even if people don’t go to the streets to protest – as they are used to such scandals in Central & Eastern Europe – these cases add up,” he argues.

Amid the recent demonstrations of teachers and nurses, support for Fidesz fell seven percentage points to 46% among decided voters, according recent polls.

Local newspaper Vilaggazdasag asked the MNB whether Matolcsy will consider stepping down, but the central bank sought to distance itself from its offspring. The foundations are not under the control of the governor or the MNB it suggests.

That's a line that will be spun throughout the political establishment, claims Amrus Kiss at Policy Agenda. “The MNB has been carrying out these measures since its new leadership came to power," he tells bne IntelliNews. "Fidesz would find it difficult to pretend that there was no political mandate for these steps." The analyst insists it would be hypocritical of Fidesz to remove Matolcsy.