I would be remiss if I didn’t comment on last week’s news: the unanimous decision of the Constitutional Court regarding the status of the Hungarian National Bank’s recently established foundations.
I have followed and reported on the bank’s highly unusual “business activities,” which included the purchase of valuable real estate with the presumed purpose of making a profit. The best example was the purchase of Budapest’s most valuable office building, the Eiffel Palace.
But the most spectacular venture of György Matolcsy, chairman of the bank, was giving away 250 billion forints to five “educational” foundations. That is a tremendous amount of money, about 2% of Hungary’s yearly GDP. It was especially galling that the National Bank refused to divulge any financial details of these foundations. A year ago, after being rebuffed by the bank on the issue, Bertalan Tóth, an MSZP MP, brought suit against the bank. Tóth won both in the first instance and on appeal: the verdict was that these foundations must give a full account of their operations and finances because their activities are financed with public money. The case then moved up to the Kúria, which agreed with the verdicts of the lower courts.
It was at this point that Matolcsy, most likely with Viktor Orbán’s blessing, made a fatal mistake. With incredible speed a bill was presented to parliament that made the financial details of the foundations a state secret. The reason? Knowledge of the financial activities of an affiliate of the bank might cause financial loss to the National Bank itself. When pressed, Lajos Kósa, leader of the Fidesz parliamentary caucus, explained that the money that had been put into the foundations was no longer public money. It had morphed into private property.
Fidesz’s decision to push this very dubious bill through parliament was in vain. The legislation got into trouble as soon as it reached the desk of President János Áder. He and his legal team decided that the amendments attached to the Law on the National Bank (Law CXXXIX of 2013) were most likely unconstitutional and decided to send them to the Constitutional Court. In cases like this the court has only 30 days to decide. On March 31 they handed down a unanimous decision: the bank’s money didn’t morph into private funds once it was deposited in the foundations. The 250-300 billion forints are still part of the national wealth and as such must be transparent.
The case was so clear cut in my opinion that it would have been close to impossible for the judges, even if most of them are in the Fidesz camp, to give their blessing to this outrageous bill. But the court could have ruled much more narrowly than it did.
The Hungarian media’s primary concern in this case was always the lack of transparency, and therefore the reports that have appeared about the decision usually emphasize this particular aspect of the decision. They rejoice that from here on they will have access to information on these very suspicious foundations without even having to ask for it. From here on these foundations must make all their transactions public on their websites.
I, however, wonder whether some of the Constitutional Court’s observations on the “job description” of the Hungarian National Bank aren’t more important than the transparency issue. The court, among other things, states that the National Bank serves the common good and that it is not part of the private sector. Therefore it cannot pursue commercial activities intended to generate a profit. Whatever extra money accumulates in the coffers of the central bank is the result of changes in exchange rates. But this is not profit in the traditional sense of the word, as Péter Róna pointed out on ATV Friday night. Perhaps the best description of the money thus accrued would be “gain.” In Hungarian, he called it “eredmény.” If, however, a central bank tries to manipulate exchange rates for its own financial benefit, Róna continued, it would most likely be harmful to the country’s economy and would also most likely be illegal.
What is devastating to the present leadership of the Hungarian National Bank is that in its decision the Constitutional Court spelled out the competence of the National Bank: monetary policy and supervision of financial institutions. Its primary goal is the maintenance of price stability. Its capital comes from the state and its shares are also owned by the state. All this makes Matolcsy’s transactions in the last two or three years illegal.
The question is whether there will be any consequences of this reiteration of the mandate of the Hungarian National Bank. It took the bank a long time to chew the verdict over: it was only this afternoon that its spokesman reacted to the March 31 decision of the court. He said that the foundations, even without this court decision, were moving toward greater transparency. But, he added, “these foundations have been separated from the bank and it will be their decision how they will provide the necessary transparency.” This signals to me that the National Bank is planning to continue to play its old games as far as its foundations are concerned.
So far only LMP made public its party’s reaction to the Constitutional Court’s decision. Erzsébet Schmuck, LMP PM, today demanded “the liquidation of the foundations” and expressed the party’s opinion that in view of the Constitutional Court’s verdict the Hungarian National Bank in the past few years has been operating illegally. LMP earlier submitted a proposal which would obligate the central bank to return all gains accrued over 20% or at least 10 billion forints of the total to the central budget. Apparently this is the German practice.
I find LMP’s suggestions logical and appropriate. They most likely reflect the opinions of Péter Róna, who has been active as an economic and financial adviser to the party. It would be a good idea for the politicians of the other opposition parties to support the LMP position.