Central bank chief confirms Hungary has no plans to reduce forex debt

By bne IntelliNews May 10, 2013

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Following comments the previous day from Hungarian government officials that offered the banks some hope they won't be hit up again for more money to help reduce households' foreign currency loans, the head of the central bank soured the mood on May 9 by ruling out Magyar Nemzeti Bank using its foreign reserves to help out.

The huge exposure of Hungarian households to fluctuations in the value of the forint has cost the banks huge amounts of cash over the past couple of years from government measures forcing them to alleviate the burden on households. It's this vulnerable position of households to the forint rate that is seen as the one remaining brake on Budapest's unorthodox economic policies, because those policies are predicted to cause the forint to fall if fully implemented. Pleas from the EU and US for Hungary's government to refrain from pursuing these policies have been ignored.

Gyorgy Matolcsy, right-hand man to Prime Minister Viktor Orban and formerly economy minister, is seen as the architect of many of those previous schemes to load the banks with responsibility, moves which have seen lending drop to minimal levels, provoking more sluggishness in an economy already in recession. The country's mostly foreign-owned banks have been bracing themselves for a new initiative from the government to force them to help mop up the trillions of forints still outstanding.

However, the government this week surprised many by saying it is out of ammo, and can do no more to right the situation with households. On May 8, Economy Ministry State Secretary Zoltan Csefalva said the government could do no more to help the hundreds of thousands of families who remain exposed to swings in the forint's value after taking on euro and Swiss franc debt during a real estate boom. The same day, the central bank's managing director, Marton Nagy, said Hungary should bring in personal insolvency laws to help to deal with bad debts.

Matolscy backed that up in an interview on May 9 with the weekly Heti Valasz. He gave a blunt "no" when asked if he could envisage using some of the bank's foreign currency reserves to resolve the loans problem, reports Reuters. Under Matolcsy, a former economy minister who took over from the hawkish Andras Simor in March, the central bank has offered HUF250bn to help small firms with foreign currency loans.

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