Hungary mulls EU passport sale at €250,000 a pop

By bne IntelliNews October 31, 2012

bne -

Hungary is set to tempt foreign investors with citizenship in return for lending it cash, opening what appears to constitute a sale of EU passports at €250,000 a pop.

Proposed legislation listed on the Hungarian parliament's website would grant permanent residency, and ultimately Hungarian citizenship, to investors who buy €250,000 of special government bonds. The move, backed by the ruling Fidesz party which enjoys a large majority, is designed to attract new investors, especially from China, reports Reuters. However, schemes in other new member states suggest there could be plenty of interest from elsewhere also.

"The goal is to create the institution of 'investor residency' in Hungary," the introduction to the legislation states. "The proposal ties gaining citizenship to buying bonds because it intends to aid state financing this way. Other investments from those applying for such residency could boost the real estate, retail and investment markets."

"The Chinese have articulated repeatedly that we should help their Hungarian investments," lawmaker Mihaly Babak of the ruling Fidesz party told Nepszabadsag. "If someone is a Hungarian citizen, they have more (investment) opportunities. The condition of a preferential process is the purchase of €250,000 worth of bonds with a five year maturity... We can attract capital from the so-called Third World this way and also finance reducing state debt."

The proposal calls for the debt management office to issue special "residency bonds" to foreigners. Holders of at least a quarter of a million euros' worth of the paper would get preferential immigration treatment.

As Budapest struggles to find a way to survive the Eurozone crisis without accepting the terms attached to an IMF bailout, it needs to find hard currency. While the country has strong reserves and a trade surplus to help it through the trough, it has billions of euros worth of foreign debt maturing, and analysts suggest that it will need extra hard currency funds by the middle of 2013.

Although forint debt sales have been going well, Hungary has not managed to sell any debt on international markets so far this year, with yields elevated by the country's precarious economy, the government's "unorthodox" policy making, and the long-winded stand off with the IMF.

Any move to issue foreign currency debt would send borrowing costs rocketing, as it would be taken as a clear sign that Budapest has no intention of trying to secure a bailout. Instead, the government has discussed plans including selling euro-denominated bonds to domestic buyers and trying to attract major new investors from Asia in a bid to find the funds it needs.

Latvia provoked large protests from nationalists when in 2010 it unveiled a scheme granting investors a temporary residency permit to anyone investing €72,000 in real estate, with the mood very much influenced by fear of mass acquisitions by Russians. The immigration trick - which granted such investors the freedom to travel and reside anywhere in the EU - was thrust into the spotlight when former Moscow Mayor Yuri Luzhkov applied for the scheme in early 2011 after he fell from grace with the Kremlin.

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