Matolcsy adds to speculation Hungary govt wants forex reserves

By bne IntelliNews March 15, 2012

Tim Gosling in Prague -

Hungarian Economy Minister, and main man behind the country's "unorthodox" economic policy, Gyorgy Matolcsy heightened speculation that the government is targeting the central bank as its next source of revenue, writing in an article published in local weekly Heti Valasz on March 14 that the Magyar Nemzeti Bank (MNB) has "overly high foreign currency reserves."

Reports in early January claimed that the government is planning to raid the forex reserves to repay HUF187bn (€640m) in municipal debt and give the economy a capital injection. Matolcsy's ministry flatly denied the reports, which were based on unnamed government sources, reports portfolio.hu, saying it would not use the country's forex reserves in anyway that violates EU or Hungarian regulations. However, realistic alternatives, outside tough austerity measures, look limited.

The government has sternly resisted clamping down on expenditure since it came to power in 2010. In a bid to avoid austerity measures, the ruling Fidesz party has, to date, followed a policy of one-off revenue raising schemes to fight the effects of the crisis. Special taxes on certain commercial sectors were joined by an €11bn-plus raid on the country's private pension funds in 2011.

That allowed Budapest to claim that it achieved a budget surplus last year. However, Brussels wasn't fooled, and on March 13 confirmed that it will freeze half a billion euros in funds unless Hungary introduces measures and structural reforms to reduce its deficit. The worry is that Budapest will seek more short-term cash in its bid to resist those demands.

Therefore, Matolcsy's latest claim that, "holding overly high foreign currency reserves [costs Hungary] HUF100bn [per year]," should put the central bank governor, Andras Simor, on high alert.

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