Hungary’s Orban to Curb Central Bank Chief’s Power With Law
December 22, 2011, 1:13 PM ESTBy Zoltan Simon
(Updates with new rules in second paragraph, politics in third and fifth, quote in fourth.)
Dec. 14 (Bloomberg) -- Hungarian Prime Minister Viktor Orban wants to curb the central bank chief’s powers, according to a bill submitted to parliament.
The law would expand the rate-setting Monetary Council to as many as nine members from seven, according to the draft posted on Parliament’s website today. The central bank chief will have to cede powers, including naming vice presidents, that would belong to the prime minister and the country’s president.
Orban has been curbing the power of independent institutions and asserting his influence since winning a two- thirds parliamentary majority last year. Central bank President Andras Simor in March said he rejected what he called “bullying” by a government official to quit before his mandate expires in 2013.
The central bank bill “represents a shift in emphasis in the sense that the decision and execution powers concentrated in the hands of the central bank president will now be divided between the Monetary Council and a newly created board,” the ministry said in the document.
The forint traded at 304.39 per euro at noon in Budapest, compared with 303.66 yesterday. It has weakened 13 percent against Europe’s common currency since June 30, the second-worst performer among more than 170 currencies tracked by Bloomberg, behind the Polish zloty.
Orban’s Appointees
Orban’s lawmakers reduced the jurisdiction of the Constitutional Court, wrote a new constitution, replaced an independent Fiscal Council with one dominated by the premier’s allies, created a media regulator led by ruling-party appointees and chose a member of their party to lead the State Audit Office.
Parliament yesterday approved a judicial overhaul that will oust Supreme Court Chief Justice Andras Baka.
The central bank bill would allow the number of central bank vice presidents to be expanded to as many as three from two. The Monetary Council would decide on their responsibilities at the central bank chief’s recommendation.
Simor was this year stripped of his right to nominate two of the four outside members in the Monetary Council. The parliamentary majority cut his salary by 75 percent, defying criticism from the European Commission and the European Central Bank.
EU’s Highest Rate
The rate-setting panel is composed of four outside members elected by a ruling-party dominated committee, Simor and his two deputies, Ferenc Karvalits and Julia Kiraly.
Policy makers last month raised the benchmark two-week deposit rate to 6.5 percent, the European Union’s highest, from 6 percent to protect the forint after the country lost its investment rating at Moody’s Investors Service.
Moody’s cited concern about the sustainability of the government’s debt-reduction drive, which relied on one-off measures such as the effective nationalization of $13 billion in mandatory private pension funds and special industry taxes.
The central bank, and “to a lesser extent” the government, need to make “gestures” and cooperate on economic policy to boost growth, Mihaly Varga, Orban’s chief of staff, told the news website Origo yesterday.
History of Meddling
Hungary has a history of meddling with the central bank’s independence. In 2005, Prime Minister Ferenc Gyurcsany enlarged the Monetary Council and ended the central bank’s monopoly on the nomination of new policy makers. Zsigmond Jarai, the bank’s president at the time, was last year named to head the central bank’s supervisory board.
Two central bank chiefs were forced out before their term expired since the end of communism more than two decades ago. Gyorgy Suranyi lost his job after a year in 1991, when the country’s first freely elected government changed the central bank law to give the prime minister the power to replace him. He served a full term from 1995 to 2001.
Peter Akos Bod, central bank head between 1991 and 1994, resigned midway through his term, citing “political conflicts” over the bank’s independence with the Socialist government that had ousted the administration which installed him.
To contact the reporter on this story: Zoltan Simon in Budapest at zsimon@bloomberg.net
To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net
