Hungarian National Bank Governor to initiate abolition of bank's foundation with government

Speaking at a press conference on Tuesday, Hungarian National Bank Governor Mihály Varga announced that he has initiated consultations with the government “in the interest of cleaning up the institution's profile”. The Governor said that the competences of the central bank would be amended at legislative level, narrowing them down to core tasks, which in practice means that Varga will initiate the abolition of the asset management foundations. Viktor Orbán has appointed Gergely Gulyás, the Minister in charge of the Prime Minister's Office, to lead the consultations with the National Bank, Index has learnt.

The press conference was held jointly by the Hungarian National Bank (MNB) and the Hungarian Chamber of Commerce and Industry (MKIK), after signing a cooperation agreement about a number of projects which are going to contribute to decisions on economic policy.

Commenting on the fact that last week Standard and Poor’s gave Hungary's credit rating a negative outlook while maintaining the same investment grade, Varga said that no one is happy about such a decision, but added that Hungary needs to get on a path that will maintain sustainable growth with low inflation.

As for the MNB scandal, Varga said the central bank is seeking to cut activities that are not part of its core tasks. He considers the operations of foundations to fall under this category, which is why they are being reviewed and their operations streamlined. It's been known since the latest meeting on interest rates that he had started a discussion with Viktor Orbán on this, and now, in response to a journalist's question, he said he had initiated the discussion with the government "in the interest of cleaning up the institution’s profile". The competences of the central bank will be adjusted at the legislative level, and Gergely Gulyás will be responsible for this.

As previously reported, in mid-March the State Audit Office (ÁSZ) published three reports totalling more than 600 pages, which were more or less related to the Hungarian National Bank:

• one on the financial management of the Pallas Athéné Domus Meriti Foundation (PADME);
• one on the investments of the Foundation of Neumann János University in Kecskemét;
• and one on the operations of the MNB itself, including the cost of the renovation of its headquarters.

Of these, the first report, the one on the management of PADME attracted the most attention, despite the fact that, thanks to the work of the independent press, it has been known for years that the management of the MNB Foundation was problematic. On 17 March, two days before the publication of the official report, Direkt36, which obtained the draft report from ÁSZ, reported that when examining the past management of the assets of the MNB foundation worth hundreds of billions of forints, the State Audit Office had identified serious shortcomings and decisions which have led to significant losses.

New details in this case continue to emerge almost daily. In recent days, for example, Ádám Matolcsy, the son of former National Bank Governor György Matolcsy has spoken up, telling Telex in writing that nobody stole the assets of the MNB or the MNB Foundation, but that there was an ongoing politically motivated smear campaign against his father, which he primarily attributed to his father's economic and political rivals. “But even such a confrontation is no reason to have the State Audit Office mislead public opinion with an unprofessional report.”

Meanwhile, there seems to have been a shift in the government's communication on the MNB case, as in recent days the European Central Bank (ECB) has been brought up as the one to blame. Lajos Kósa, one of the deputy chairs of Fidesz, said that the ECB was to blame because a law that would have prevented the non-transparent management of the money in the MNB's foundation could not be passed, and a similar point was also made by Gergely Gulyás a few days earlier.

The Kecskemét thread of the MNB case will also be worth keeping an eye on: on Tuesday, activists encouraged locals (who enthusiastically responded) to honk their horns at three busy roundabouts in the town in protest about the missing funds of the local university's foundation. The Foundation for the Neumann János University which operates the Kecskemént institution purchased bonds from a company belonging to the MNB in 2021. The report of the State Audit Office of Hungary (ÁSZ) published at the end of March dealt with this in detail as well. We wrote about this case in more detail in this article.