Hungary Matolcsy Would Like To See The Entire Monetary Council Go

  • 12 May 2010 4:00 AM
Hungary Matolcsy Would Like To See The Entire Monetary Council Go
"Hungary’s Economy Minister-designate György Matolcsy said members of the central bank’s (NBH) Monetary Council should resign for the mistakes they have made over the past seven years. In an interview with local daily Népszabadság he also said he was dissatisfied in general with the work of all financial regulatory institutions, including markets watchdog PSZÁF.

"In my opinion the central bank has made serious professional mistakes since the summer of 2003: they have allowed the proliferation of foreign exchange lending, focusing exclusively on inflation. We can see with what results," Matolcsy said.

The central bank’s primary goal is to achieve and maintain price stability and both the current Governor András Simor and his predecessor Zsigmond Járai cited this objective when the NBH was subject to criticism. In this respect Matolcsy said the NBH has lost the balance of its goals in October 2008.

"They have focused exclusively on the battle against inflation, and they have lost this battle. Meanwhile, the range of monetary tools is wide," Matolcsy said, adding that the NBH has apparently "not learned from its mistakes."

The EcoMin-elect noted that it is not the sole responsibility of Simor’s, as his critical remark was "aimed at the management structure of the national bank." To a question whether the MPC members should draw the conclusions for what they have done over the past 18 months and resign, Matolcsy replied: "Yes, I believe so."

To a question whether he was also unhappy with how financial markets supervision PSZÁF handled its duties, Matolcsy said: "I am discontent with the job of every financial regulatory institute within the state’s jurisdiction."

New deficit "goal"

Centre-right Fidesz, which won a landslide victory over the Socialists last month and mustered a two-thirds legislative majority in Parliament, expects this year’s budget deficit to considerably exceed the government’s target of 3.8% of GDP.

Earlier Matolcsy said the markets, the International Monetary Fund (IMF) and the EU would tolerate a gap between 4.5% and 6.5%. Now he has narrowed this range to between 5% and 6%.

Debt conversion

With regard to his recently announced idea to facilitate the conversion of FX debts to forint debts, Matolcsy emphasised that not the whole lot of FX debts (around EUR 24 billion) would be converted, because that would shock the forint.

He said a state fund would be created for those who want this option. If the debtor fails to clear the instalments of his/her forint debt, ownership of his/her mortgaged real estate would go to the state (the local government) and then they could agree on a monthly rent, he said.

He reiterated that some 300,000 families are directly exposed to the risk of being unable to repay their instalments. "They were lured into the trap of foreign currency borrowing by the state and the NBH," he added.

Matolcsy pledged to introduce further tightening measures in lending. He said "there is no need to restrict" foreign currency lending but certain requirements have to be set, such as banning the unilateral modification of loan terms. Although banks are not allowed to do that, Matolcsy said reality shows different."

Source: Portfolio Online Financial Journal

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