Bloomberg News

Hungary Needs Fiscal-Policy Control Beyond Debt Cap, Simor Says

October 27, 2011

Oct. 27 (Bloomberg) -- Hungary needs to introduce independent controls to fiscal policy as setting a constitutional limit wouldn’t be enough to fend off a crisis, central bank President Andras Simor said.

“What is most important is to entrust politically independent institutions to enforce fiscal regulations,” Simor said today at a conference in Budapest organized by the news website Portfolio. “If we have institutions that are under political influence holding the mirror, the government will see a distorted picture.”

The government of Prime Minister Viktor Orban, which holds a two-thirds majority in parliament, dismantled the independent Fiscal Council that criticized the budget, replacing it with a three-member committee dominated by Orban’s allies.

Besides Simor, the council consists of Zsigmond Jarai, who was Orban’s finance minister in 1998-2000 and later served as a central bank president as well as Laszlo Domokos, a former ruling-party member who now heads the State Audit Office. The group voted two-to-one to back the 2012 budget with Simor voting against it, Jarai said on Sept. 23.

Anti-cyclical fiscal policy would help the country overcome the crisis more quickly and increase the room to maneuver for monetary policy, Simor said today.

“The government should focus on the structural budget balance, setting a debt limit alone is insufficient, he said.

The Cabinet is raising taxes and cutting spending to narrow the budget deficit to 2.5 percent of gross domestic product next year as economic growth slows. Hungary’s new constitution, taking effect next year, includes a public-debt limit of 50 percent of GDP.

Hungary, the most European Union’s most indebted eastern member, is targeting a debt ratio of 72 percent by end-2012, Economy Minister Gyorgy Matolcsy said on Sept. 30.

--With assistance from Andras Gergely in Budapest. Editors: Balazs Penz, Andrew Langley

To contact the reporter on this story: Edith Balazs in Budapest at ebalazs1@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net


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