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Hungary’s New Central Bank Chief Tightens Grip

March 4, 2013 by Leave a Comment

BUDAPEST — Gyorgy Matolcsy, the new governor of Hungary’s central bank, tightened his grip on power during his first day in office Monday, issuing new rules that curb the powers of the bank’s deputy governors.

The bank’s Web site indicated that Mr. Matolcsy issued new articles of association on Feb. 28, when he was still the government’s economy minister, requiring that deputy governors represent the bank only jointly with a new chief director. The deputy governors previously had the right to represent the bank in their own field of expertise.

Prime Minister Viktor Orban on Friday put Mr. Matolcsy in charge of the bank, choosing him over a critic of the prime minister’s go-it-alone economic policies. The appointment is seen as Mr. Orban’s latest move to increase the Fidesz Party’s influence over independent state institutions.

Two of the three deputy governors at the bank were appointed by a previous Socialist-dominated administration, in contrast to the rest of the bank’s policy council, who were nominated by the Fidesz majority in Parliament.

Mr. Matolcsy, the architect of a government policy that has seized private-sector assets for the state and increased taxes on big businesses, will also have direct rights over the hiring, dismissal and pay of all central bank employees and can delegate this power to the new chief director.

Investors fear the appointment will lead the bank to take risky steps with monetary policy to lift the recession-hit economy, which could threaten the country’s already-volatile currency, the forint.

During questioning in Parliament on Friday, Mr. Matolcsy said he supported “conservative, responsible” monetary policy. He said the bank would stay independent and would examine new tools to spur economic growth.

But he added that it must strive for a “strategic partnership” with the cabinet, while also maintaining price stability.

Mr. Orban also nominated a third deputy governor, Adam Balog, to the bank when he appointed Mr. Matolcsy on Friday. In addition, parliamentary documents showed that the economic committee on Monday would hold a confirmation hearing for a new nominee, Gyula Pleschinger, state secretary at the Economy Ministry, to the central bank’s rate-setting Monetary Council.

Article source: http://www.nytimes.com/2013/03/05/business/global/hungarys-new-central-bank-chief-tightens-grip.html?partner=rss&emc=rss

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Hungarian Prime Minister Cements Control Over Central Bank

March 1, 2013 by Leave a Comment

Gyorgy Matolcsy, who has spearheaded Hungary’s unorthodox financial policies as economics minister, will become the country’s next central bank chief, in a move by Prime Minister Viktor Orban that analysts warned could open the bank to political influence.

Mr. Orban, who has in the past described Mr. Matolcsy as his “right hand,” announced the appointment on state radio Friday, saying that he would be a stabilizing force whose government experience would help assure predictability.

“This is the least risky decision,” Mr. Orban said.

Some analysts, though, expressed fears that Mr. Orban, who has used his two-third majority in Parliament to expand his control over the judiciary and the media, was tightening his grip on the National Bank of Hungary, whose independence he has not always been able to tame under its departing governor, Andras Simor.

The government has repeatedly clashed with Mr. Simor, accusing him of not doing enough to stimulate the economy. Mr. Simor, in turn, has tried to resist pressure for a looser monetary policy and has blamed the government’s policies for helping to push the economy into recession.

As economics minister, Mr. Matolcsy’s unconventional fiscal policies, which included nationalizing private pension funds and levying special taxes on the banking, energy, telecommunications and retailing sectors, have undermined investor confidence. Some observers fear that monetary policy under Mr. Matolcsy could become in thrall to politics ahead of elections next year.

And Mr. Matolcsy, an economist who once served as Hungary’s representative at the European Bank for Reconstruction and Development in London, is not known for his diplomacy, and has sometimes unsettled financial markets. As economics minister, he has railed at the central bank’s current tight monetary policy as “catastrophic,” referred to international financial investors as “pirates” and heaped scorn on the International Monetary Fund — which extended a €20 billion, or $26 billion, aid package to Hungary in 2008.

“In my view he lacks the necessary experience to lead the bank,” said Peter Rona, an economist and senior fellow at Oxford University who was nominated by the Green Party, in the opposition, to sit on the Hungarian central bank’s supervisory board. “Being the governor of a central bank is a subtle and complicated job. My worry is that I just don’t know what to expect of him.”

Mr. Matolcsy will be replaced at the economics ministry by Mihaly Varga, 48, who has led the government’s negotiations with the I.M.F. and other international financial organizations.

Hungary is not in the euro zone and its economy is relatively small, with an estimated gross domestic product of €100 billion, a tiny fraction of Germany’s €26.4 trillion economy, for example. But problems in Hungary could infect other countries in the region.

Banks or other investors could suffer losses if Hungarian government bonds lost value. In addition, a large portion of the Hungarian banking system is owned by foreign institutions, particularly Austrian banks.

Erste Bank, based in Vienna, said Thursday that its Hungarian unit had a net loss of €55.1 million last year. The bank blamed new taxes imposed by the government as well as a law that required banks in Hungary to redeem loans that were issued in foreign currencies at a rate that favored borrowers.

As tension in the euro zone rises again because of political uncertainty in Italy and a banking crisis in Cyprus, losses in Hungary could give investors another reason to be nervous.

Addressing the economics committee in Parliament on Friday, Mr. Matolcsy emphasized that the central bank “has been and will be independent.” That point was also underlined by Mr. Orban in his radio broadcast Friday.

Zoltan Pogatsa, professor of economics at the University of Western Hungary, said concerns that Mr. Matolcsy’s appointment would solidify Mr. Orban’s power over the central bank were beside the point since the government already had a majority on the bank’s monetary committee, which sets interest rates.

Analysts said the main worries about Mr. Matolcsy were that he could prove overly aggressive in using monetary policy to devalue the forint, the Hungarian currency. That could backfire, they said, since many Hungarians hold mortgages in Swiss-denominated francs.

There is also concern among economists that Mr. Matolcsy will seek to emulate the economic stimulus known as quantitative easing used by the U.S. Federal Reserve or Bank of England — essentially, a way of pumping money into the economy. That, economists warn, could prove perilous in a small country like Hungary that cannot finance itself without foreign capital.

Dan Bilefsky reported from Paris, and Jack Ewing contributed reporting from Frankfurt.

 

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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Uncertainty Mounts Ahead of Hungarian Bank Chief Selection

February 28, 2013 by Leave a Comment

FRANKFURT — The change coming at the top of the Hungarian central bank has raised fears that monetary policy could soon be subverted to 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 is expected to appoint a successor to Andras Simor, whose term as governor of the Hungarian central bank is expiring, as early as Friday. The front-runner appears to be Gyorgy Matolcsy, the Hungarian economics minister, a maverick who is close to Mr. Orban and whose statements often cause the forint, the country’s currency, to gyrate on money markets.

Mr. Orban might also turn to Mihaly Varga, a former finance minister and ally who led Hungary’s negotiations with the International Monetary Fund for financial support.

Whoever gets the job is expected to be in step with Mr. Orban and pursue unorthodox policies designed to jolt the Hungarian economy out of recession in time to help the government win re-election next year.

The appointment would also consolidate Mr. Orban’s control of one of the nation’s last independent institutions.

“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. “If that goes under his control, the last point of resistance is gone.”

Mr. Matolcsy’s past statements suggest he would be willing to throw out the rule book of central banking if he got the job.

“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, or another Orban appointee, is expected to try to emulate the quantitative easing used by the U.S. Federal Reserve or Bank of England. 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 have already contributed to the flight of capital from the country. Funds equal to 2 percent of gross domestic product, or about €4 billion, left Hungary in the third quarter of 2012, according to the European Bank for Reconstruction and Development.

Along with Slovenia, which is in the middle of a banking crisis, Hungary suffered the worst capital flight of any country in Eastern Europe or the Balkans.

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 would 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 that 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/2013/03/01/business/global/uncertainty-mounts-ahead-of-hungarian-bank-chief-selection.html?partner=rss&emc=rss

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Hungary Pledges to Seek Quick Deal With I.M.F.

January 5, 2012 by Leave a Comment

BUDAPEST — Hungary pledged on Thursday to seek a fast agreement with international lenders to shore up its financial markets as its currency and bonds plunged further in a deepening crisis surrounding the government’s policy course.

Officials were forced to cut the value of a treasury bill auction and some analysts said the central bank might have to raise interest rates soon to halt the sell-off, an emergency move that would mirror steps it took in 2008.

Hungary sought €20 billion, or about $26 billion, from the International Monetary Fund and the European Union in a bailout three years ago. But the new conservative government only just came back to the table in November, after saying in mid-2010 that it did not need any new agreement.

Its minister in charge of the talks, Tamas Fellegi, said Thursday that the government now wanted to strike a new funding deal “as soon as possible.” He said it was ready to discuss any proposal made by lenders, and would accept them if they are in the interest of the country.

“We are ready to negotiate without preconditions, and we are ready to discuss everything at the negotiating table,” he said.

He added that Hungary would accept a precautionary standby agreement from the I.M.F., but would not draw on any funds made available unless market conditions make it necessary.

Hungary, which like much of Europe is facing a possible recession, must roll over nearly 5 billion euros worth of external debt this year — on top of maturing debt denominated in forints — as it begins repaying the I.M.F./E.U. loan that saved it from financial collapse in 2008.

Since sweeping to power in 2010, Prime Minister Viktor Orban’s Fidesz party has tightened its grip on the media and the top constitutional court, taken over private pension funds and slapped Europe’s biggest tax on banks — prompting a series of international protests and unnerving markets.

After the forint’s fall to a new record low versus the euro on Thursday, and a further jump in credit insurance costs, Mr. Fellegi said the government was clear about the seriousness of the situation. He added that a weaker forint was a serious problem with regard to repaying debt.

But investors continued to ditch Hungarian assets as they fear the talks with lenders will be very hard, given the government’s unorthodox policies and its previous tough stance.

The forint briefly firmed after Mr. Fellegi’s comments but remained highly volatile while 5-year and 10-year bond yields fell by about 50 basis points to below 11 percent, after surging to 11.20 percent earlier in the day.

The state debt agency cut its sale of Treasury bills by 10 billion forints, or $40 million, after bids from investors fell short of the planned 45 billion forints and the yield surged — a sign of the trouble Budapest may face in securing funds in months ahead.

“On the I.M.F. front, Fellegi’s comments are aimed at providing re-assurance, but I think the market will adopt a seeing is believing approach, given that market trust in this administration is now at rock bottom levels,” Timothy Ash at Royal Bank of Scotland said.

“They will want to see the ink and fine detail on any I.M.F. agreement,” he said, and expect the I.M.F. and European Commission “to negotiate hard with the Hungarian side.”

Talks broke down last month over a law curbing the independence of the central bank, but Mr. Orban has refused to withdraw the legislation, defying E.U. demands.

Despite recent concessions offered by Hungarian policy makers, many investors fear it will be very hard politically for the prime minister to change his policies in a significant way, boding ill for negotiations.

Janos Lazar, the parliamentary group leader of Orban’s Fidesz party told the news agency MTI on Thursday that Hungary needed the guarantees provided by an international agreement to be able to finance its debt, but would accept only such compromises and solutions that served its own interests.

“The servile behavior which characterized previous governments is not justified because the revenues and expenditures of this country broadly match,” Mr. Lazar was cited as saying. “If our debt was not this high, the country would stand on its feet in a stable way.”

He told MTI that Fidesz was ready to approve legal changes or pass new legislation proposed by the government within the context of the planned aid talks, which Budapest expects to start officially later this month.

But Mr. Lazar also reiterated criticism of the central bank, saying it was not doing enough to help boost growth and back the government’s policies with monetary tools, unlike in 2008 when it bought mortgage notes and bonds on the secondary market.

The government has repeatedly criticized the bank for interest rates it considers to be too high, and for not doing more to boost lending to the economy.

The bank’s key base rate stands at 7 percent now, but analysts said the bank could be forced to raise it further if the forint’s slide continues.

While most analysts believe Hungary’s government will back down and eventually sign an agreement with lenders, some say this could require a deeper market crisis first.

“Again we are seeing shifts to get negotiations started and calm the market, but still a lot of feet dragging, but we are nowhere near the place where Orban will be U-turning on policy,” Peter Attard Montalto at Nomura said.

Article source: http://www.nytimes.com/2012/01/06/business/global/hungary-pledges-to-seek-quick-deal-with-imf.html?partner=rss&emc=rss

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Britain and China Set $2.2 Billion in Deals and a Goal of Doubling Trade by 2015

June 28, 2011 by Leave a Comment

In announcing the deals, worth about $2.2 billion, the British prime minister, David Cameron, restated the goal of doubling trade between the countries to $100 billion by 2015. Mr. Wen said that he was “confident” of meeting that goal.

“The purpose of my visit is to promote communication, cooperation and development,” Mr. Wen said at a news conference in London. Mr. Cameron said China presented a “huge opportunity” for British companies.

Mr. Wen was more than half through a four-day European tour. He had already visited Hungary and was to travel to Germany late Monday.

After a meeting with the Hungarian prime minister, Viktor Orban, over the weekend, Mr. Wen said that China had “total trust in Europe’s economic development” and would “consistently support Europe and the euro.”

In Britain, Mr. Cameron’s government is trying to strengthen trade relations with the faster-growing China. The goal is to increase exports and bolster British manufacturing to speed an economic recovery that recently has started to slow.

British exports to China have grown 20 percent since last November, when Mr. Cameron visited Beijing with a business delegation. China has become the third-largest source of British imports, after Germany and the United States, according to the Office for National Statistics.

Britain and China agreed Monday to increase infrastructure investments in both countries and grant British businesses better access to China’s civil engineering and research markets. A ban on British poultry exports to China, which was imposed as a result of avian flu cases in 2007, was lifted, and Britain is to sell more pigs and their meat to China.

Diageo, the British spirits company, said Monday that Chinese regulators had approved its acquisition of an additional 4 percent stake in the liquor maker Sichuan Chengdu Quanxing, giving Diageo control.

Other deals announced after the talks included an agreement between Weatherly International, a British mining company, and the East China Mineral Exploration and Development Bureau to cooperate on the development of a lead zinc mine in Namibia. The BG Group, the British natural gas company, also signed a deal with Bank of China to receive as much as $1.5 billion in financing.

During the news conference, Mr. Wen dodged questions about China’s human rights record. “On human rights, China and the U.K. should respect each other, respect the facts, treat each other as equals, engage in more cooperation than finger-pointing and resolve our differences through dialogue,” he said.

On the same issue, Mr. Cameron merely repeated a statement from his last visit to China, saying, “We do believe the best guarantor of prosperity and stability is for economic and political progress to go in step together.”

Mr. Wen was to meet Chancellor Angela Merkel of Germany in Berlin on Monday. China and Germany are expected to announce 30 cooperation and trade agreements on Tuesday, the German foreign ministry said.

As part of those talks, officials were to discuss a possible order for superjumbo jets that has caused controversy. China is pushing the European Union to abandon plans to regulate the greenhouse gas emissions of airlines, including foreign-owned ones, flying to and from the 27-country bloc. China warned this month that it could block its airlines from buying new planes built by Airbus, which is based in France, if Brussels proceeded with the plans.

The issue came to a head at the Paris Air Show last week, when Chinese officials sought to derail an order for 10 Airbus A380 superjumbo jets by Hong Kong Airlines, a domestic airline that operates between Hong Kong and the Chinese mainland. Airbus had planned to announce the $3.8 billion contract, which had already been signed by the airline, at the show, but Beijing declined to give final approval, people with knowledge of the talks said.

Formal approval of the deal was expected to be granted eventually, said these people, who spoke on condition of anonymity because the situation was politically fragile. They said, however, that further Chinese orders of Airbus jets had been delayed, including a large one that Airbus had hoped to announce while Mr. Wen was in Germany. It was unclear whether that order would now be modified or postponed.

Nicola Clark contributed reporting from Paris.

Article source: http://www.nytimes.com/2011/06/28/business/global/28iht-ukchina28.html?partner=rss&emc=rss

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