FRANKFURT — The change at the top of the Hungarian central bank has raised fears that monetary policy could soon be subverted by politics, with the government resorting to printing money to revive its slumping economy.
The results of looser money, many economists say, could pose risks not just for the country but for Eastern Europe and even the euro zone.
Prime Minister Viktor Orban appointed Gyorgy Matolcsy on Friday to succeed Andras Simor as the governor of the Hungarian central bank. Mr. Matolcsy, who had been seen as the front-runner for the job, is the Hungarian economics minister. He is regarded as a maverick who is close to Mr. Orban and whose statements often cause the forint, the country’s currency, to gyrate on money markets.
The appointment of Mr. Matolcsy consolidates Mr. Orban’s control of one of the nation’s last independent institutions. He is expected to be in step with Mr. Orban and to pursue unorthodox policies designed to jolt the Hungarian economy out of recession in time to help the government win re-election next year.
“There is no doubt that the last institution in Hungary that has been able to withstand Orban’s pressure is the central bank,” said Peter Rona, an economist and senior fellow at Oxford University who is a member of the Hungarian central bank’s supervisory board. With the bank now under Mr. Orban’s control, “the last point of resistance is gone.”
Mr. Matolcsy’s past statements suggest he is willing to throw out the rule book of central banking.
“He is wholly inappropriate for this position, as he has neither the professional background nor the temperament to guide the bank,” Mr. Rona said.
Mr. Matolcsy is expected to try to emulate the quantitative easing used by the U.S. Federal Reserve and the Bank of England — the manipulation of money supply and interest rates to stimulate the economy. But policies designed to stimulate growth in big countries like the United States or Britain could be disastrous when applied to a small country like Hungary that cannot finance itself without foreign capital, economists said.
Dismay about Mr. Orban’s economic policies has already contributed to the flight of capital from the country. Funds equal to 2 percent of gross domestic product — about €4 billion, or $5.2 billion — left Hungary in the third quarter of 2012, according to the European Bank for Reconstruction and Development.
Hungary and Slovenia, which is in the middle of a banking crisis, suffered the worst capital flights of any countries in Eastern Europe.
Since becoming prime minister in 2010, Mr. Orban has used his two-thirds majority in Parliament to expand his control over the judiciary and the media.
That he could do the same to the central bank has raised concerns because it would violate the fundamental principle that monetary policy should not be dictated by politics. “A key prerequisite for a credible monetary policy is the independence of the central bank,” Mario Draghi, the president of the European Central Bank, said in Budapest in December, in a clear expression of his concern about developments there.
But foreign central bankers may have little room to criticize unorthodox policies by the Hungarian central bank when they have themselves stretched the boundaries of monetary policy.
People loyal to Mr. Orban already hold a majority on the central bank committee, which sets monetary policy. They have cut the benchmark interest rate to 5.25 percent from 7 percent last year. That is still well above the E.C.B. benchmark rate of 0.75 percent.
Though wary of criticizing Mr. Matolcsy directly, local bankers have expressed concern.
“Will he stick to the fundamental objectives of the central bank, or will he try to get out of this box to get more in alignment with the government?” asked Heinz Wiedner, head of the Hungarian unit of Raiffeisen Bank, an Austrian lender. “We have to see.”
Mr. Matolcsy, 57, has already created plenty of controversy as economics minister. He helped impose the highest bank levy in Europe and nationalized private pension funds.
Those steps helped push the government deficit below 3 percent of gross domestic product, allowing Hungary to sell $3.25 billion in 5-year and 10-year government bonds this month.
Article source: http://www.nytimes.com/2013/03/02/business/global/selection-of-hungarian-bank-chief-raises-fears.html?partner=rss&emc=rss
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