Tag Archives: Hungarian National Bank

Today’s extra: “Observer” on the enrichment of György Matolcsy & family

The corruption cases which grab the public attention are usually the big ones – the Quaestor broker firm with more than HUF 100 billion missing, the MET natural gas deals profits worth approx. HUF 150 billion realized offshore, the Residency State Bond affair with another HUF 130 billion revenue taken offshore, etc.

Corruption in Hungary, however, is so widespread that it is impossible to follow the hundreds of “ordinary” frauds, embezzlements, misappropriations and other corrupt practices flourishing in the Orbán regime. General statements like this are sometimes questioned for the perceived lack of substantiating evidence, although few readers bother to go into any details if such evidence is presented.

Three investigative reporting articles were published in Magyar Narancs (January 19, February 9, and February 23, 2017) and then in English in The Budapest Sentinel (April 25 and April 27, 2017) and offer this resume which condensed the main points from all three articles and set them in chronological order adding some comments.

The articles investigate the dubious affairs of Orbán’s “right hand,” currently deep in the pockets of the Hungarian National Bank as its chairman.

GM started his political career by joining the Hungarian Communist party, MSZMP, but in 1989 immediately jumped onto the conservative bandwagon becoming political undersecretary of the prime minister’s office in 1990. The political “flexibility” of GM proved to be coupled with an even greater moral flexibility.

The TA foundation

“A continuous and central feature in the story of the enrichment Matolcsy and his family … is a mysterious and opaque state-founded foundation, the Tulajdon Alapítvány (TA) … set up in the early days after the change of regime in November 1990 by the Antall government’s privatization agency (ÁVÜ). … GM, who was quickly “kicked out of prime minister József Antall’s inner circle” was instrumental in setting up TA with the help of ÁVÜ and became its secretary and director of the institute it operated.”

Source: mszp.hu

“The foundation accumulated enormous sums of money … [as the state paid them high fees, e.g.] 3.5 million to put together a publication on opportunities in Hungary for foreigners, while writing reports on experience in the privatization of individual state companies for 300,000 forints each. …[when] the average monthly wage in Hungary was 18 000 forints.”

In 1997 TA set up the Privatizációs Kutató Kft firm where GM, Ms Marianna Harczi and Sándor Kopátsy jointly owned a 10% stake, but only Harczi’s name appeared in the Company Registry and she acted on behalf of the trio.

 The Növekedéskutató Intézet Ltd.

 While the TA was well funded by public money GM could not simply pocket it, a fig leaf was needed. In 2001, an year in GM’s tenure as minister]… a 75% stake in Privatizációs Kutató Kft, renamed Növekedéskutató Intézet Kft., was purchased by Ms Gyöngyi László, in fact by Mrs. Matolcsy using her maiden name in an attempt to hide the real owner as there would have been a conflicts of interest. Witness the astonishing – and legally questionable stipulation in the Matolcsys’ matrimonial contract where: “The wife recognizes that the shares representing her ownership according to the company register in reality represent the property and separate assets of the husband.” The above acknowledges her role as an illegal front person, and raises the suspicion of a felony – “committing the falsification of public documents .”

 The golden eggs

 The conditions of the acquisition, the following economic results and the fall after the loss of government are very telling. In December 2000 the TA board of trustees decided to sell its 90% stake in Növekedéskutató, even if the company “had performed particularly well … achieving revenues of HUF 87 million in 1999 and 89 million the following year, with operating profits of [28% and 22%] … respectively.”

The firm was undervalued at HUF 40 million, instead of a more realistic 50 million. Moreover, 13.6 million forints in the firm were subsequently paid out in dividends to the new owners and just in time to cover almost half of the acquisition price.

It seems a very poor deal for the state to sell its 90% share of a very profitable public company for a sum equal to half year revenue or two years profit. On top of that Mrs Matolcsy was given a generous deferment and a 7 million forints of interest-free financing from the seller – TA.

Promptly the Növekedéskutató’s revenue rose by 12%, to 198 million forints in total for 2001 and 2002, but the profits skyrocketed to 118.5 52.5 million – a stunning 62% pre–tax profit. Mrs. Matolcsy received 31.7 million in dividends in the first three years realizing 60% return of on investment, or more with the effects of loan from TA – which let go the goose that laid the golden eggs. The “business” dried up with the fall of the Orbán government in 2002 – revenue crashed to HUF 15 million in 2003 bringing a loss of 20 million.

The Eurotourism Kutató és Tanácsadó Bt. partnership

In spring 2001, when Mrs. Matolcsy acquired Növekedéskutató, two firms were established whose main activity was also sociological research. Both achieved instant and never to be repeated results in 2001 and 2002 during GM’s tenure as minister.

Eurotourism was set up by the same Ms. Harczi and one of her children with starting capital of 100,000 forints. (At the time, Harczi was TA’s secretary and a member of its board of trustees, and co-owner and MD of Növekedéskutató).

In its first, incomplete year, the new firm promptly raked in HUF 42 million in revenue with a 27 million or a dazzling 64% of operating profit, surpass even this in the following two years, raising its revenue to HUF 65.5 million with 53.6 million or a miraculous 81.8% operating profit. All achieved, according to its reports, without employees and hardly any subcontractors, i.e. by Ms. Harczi alone.

With GM’s departure from his ministerial position in May 2002, similarly to Növekedéskutató case, “the firm’s revenue was a flat zero for two years and until 2015 inclusively” the firm had an annual average revenue of 2.4 million with practically no profit.

Despite the miraculous profits in 2001 and 2002 “according to the financial figures, Ms. Harczi never once took a dividend from the firm, while according to the contract she carried out her duties as managing director without remuneration.” In January 2006 Mrs. Matolcsy became “the internal partner with a 90% stake, … In September, Harczi divested her remaining 10% and finally exited, GM’s older son, Máté Huba took her place.”

Incredibly Harczi “divested her share in the firm on both occasions for its nominal value of HUF 100 00 in total, while at the end of 2005. .. Eurotourism’s own capital stood at 51.5 million forints, with total liabilities of half a million … The real value of the partnership was without doubt somewhere around 51 million.” This explains Ms. Harcz’s actions – she was a front for the Matolcsys.

The Eurocon Tanácsadó és Szolgáltató Bt Partnership

The Eurocon case is almost identical with the above described one. The partnership was set up by Dóra Újvári and János Tornallyay in 2001 with initial capital of HUF 80,000. Similarly to Eurotourism, this new firm from nowhere immediately performed outstandingly well: its revenue for 2001-2002 was HUF 62.4 million forints with 25.4 million or 41% operating profit.

Similarly, after the end of GM’s tenure as minister for the economy, the firm’s revenue plunged to an average of 10 million for the period 2003 to 2010.

GM used the same template to gain ownership – the founders were replaced by the twenty-year old son, Ádám Matolcsy, (in December 2006) and Mrs. Matolcsy (in January 2008), who paid only the HUF 150,000 nominal value for the partnership worth close to 15 million at the time. The only difference was that the founders took 16.5 million in dividends before “selling” to the Matolcsys.

Property “migration”

Mrs. Matolcsy et al also bought real estate from the TA foundation which was then run by GM as a director. Under this scheme the foundation bought at least three properties and sold them all in a few years to a family member or interest although the dealings involved a conflict of interest and were certainly illegal, probably criminal.

All properties were in an apartment block built in 1989 close to MOM Park shopping center in Budapest’s District XII:

  • A 52-m2 flat sold to MG’s 17-year-old son Ádám Matolcsy in 2003 (sole owner in 2004), who could hardly have paid for it with his own money.
  • A 65-m2 flat sold to Növekedéskutató in 2003, when the firm’s majority owner was Mrs. Matolcsy.
  • A 106-m2 retail-unit in the same building to Eurotourism Bt, after Mrs Matolcsy became the 90% owner.

 Altogether, according to the articles, GM “had 96 million forints at his disposal at the end of 2002 … the source of this sum dated from the successful years 1998 to 2002. .” As one can imagine, this was times over the total income from his foundation director and ministerial remuneration.

The articles set out other examples from the following years indicating that GM continued to cart out public money, e.g.: “the TA’s revenue between 2005 and 2010 was 180.9 million forints, which came from the party foundation run by GM until 2007, the PMA. The TA – in close cooperation with Matolcsy’s Növekedéskutató – helped Fidesz with its preparations for the election. … and, at least in part, functioned as one of the party’s background institutions … counter to TA’s charter, which prescribes political independence…the state-founded Tulajdon Alapítvány (TA) and the privately owned Növekedéskutató (later MGFI) … operated out of the same registered offices, and even shared telephone and fax numbers.” What a gall!

The Fidesz return to power in 2010 immediately brought to TA “an outstandingly good year – revenue reached 66 million… not a single word about the foundation’s clients, supporters or sources of income… Between 2011 and 2014 the TA board of trustees paid grants totaling 75.5 million forints (there is no data for 2010), but it remained unclear to whom” for studies like those carried out by the Matolcsy companies.

The articles also point out to money flowing in from other sources, e.g. support for the jovokep.hu web site, GM books, etc. Press also reported other petty tricks like claiming inflated car expenses, “renting” an expensive flat owned by a big bank CEO, appointing his confidantes, including his lover to lavishly paid positions, qualifications notwithstanding, e.g. Marianna Harczi was a metallurgical engineer. The participants in all these schemes are the same small circle of individuals, many of them related to each other, not the way a transparent public sector works.

The GM, or I can say Fidesz, schemes invariably involve a state-funded institution – a ministry, a party foundation, a second, closely held, state-owned foundation, a privately owned firm and front companies, all operated by a close circle of confidantes.

One can safely assume what is GM up to as president of the MNB [Hungarian National Bank] setting up the now infamous Pallas Athena [Athéné in Hungarian] – he’s at it again.

This time round there were billions of public forints destined to “lose their public funds nature” after their transfer from MNB to the “independent foundations” where he and his subordinates were trustees. Billions have already been loaned or transferred to GM’s relations, cousins and confidantes masquerading as business partners. After all “why should something that went so well on a small scale not work on a large scale, too?”

Reading through clearly shows that everything GM was involved in reeked of corruption, not to mention the superficial, useless or simply nonsensical of it. A depressing reading anyway.

April 30, 2017

The chairman of the Hungarian central bank discovered a U.S. plot to topple the Orbán government

The independent media outlets have a jolly good time every time György Matolcsy, the chairman of Hungary’s Central Bank, opens his mouth. Well, he spoke again today. By now even usually polite politicians have gotten to the point that they openly say that Matolcsy is not quite of sound mind and suggest that the chairman of the National Bank seek medical help.

So what happened to prompt such a response? The bank chairman delivered his report to parliament on the performance of the Hungarian National Bank in the last two years. As expected, he said that the institution under his direction had performed superbly. Under his excellent stewardship the bank’s monetary strategy added at least 1.5 percentage points to Hungary’s already respectable economic growth.

Not too many members of parliament were interested in Matolcsy’s self-praise. Only four or five MPs, just those who had to attend, were sitting in the huge chamber. I must say that those who were absent missed a great performance and a by and large incoherent speech about “a very grave shadow, a very dark shadow, a deep grey shadow” that darkened the otherwise sparklingly sunny Hungarian sky. This shadow was a treacherous ally’s attempt to topple the Orbán government with the help—you won’t believe it—of Hungary’s National Bank. But thanks to Matolcsy’s vigilance, the coup was averted.

I believe that for readers to truly appreciate Matolcsy’s muddled, rambling speech I must translate the relevant passages:

Here we should stop for a minute because there was a shadow on the year 2015, right at the beginning, in the first four months. That shadow had been visible already from August 2014 on. In 2015 one brokerage firm after another went belly up. First it was the deceitful Buda-Cash, then the deceitful Hungária Insurance Company, and finally the even more deceitful Quaestor failed; it failed because the central bank with its new methods of investigation found all the tricks this company had used in the last 10-15 years.

However, this shadow was actually good tidings. It was a good piece of news, something the whole country can be happy about, because we cleansed the Hungarian financial system by removing these robber barons. . . . But this good news was overshadowed by the fact that a large country which is a NATO ally via its embassy in Budapest began activities aimed at toppling the government and the central bank in the fall of 2014. . . . The central bank naturally would have found the deceitful brokerage firms, but it mattered when we found them: in January, February, and March. Why did we find them in January, February, and March?

Because some people wanted to use the Hungarian National Bank to create a bank panic in Hungary in April. And this bank panic actually occurred. It lasted for four hours in four different cities. We could say that this isn’t much. But it was shocking that some people, our allies and friends, wanted to use the Hungarian National Bank to topple the government by methods using the military and intelligence services.

This is a very grave shadow, a very dark shadow, a deep grey shadow. It has no different shades: it is just dark.

The few people in the chamber were stunned. It was immediately clear to everybody that Matolcsy was talking about the United States.

This muddle is full of unanswered questions. In what way did the United States want to influence either the brokerage firms or the central bank? Why was the so-called coup timed for April? How did Matolcsy manage to foil the Americans’ plans?

Source: 444.hu

The opposition politicians who had gathered to engage in the usual parliamentary debate after such a report were stunned. They were simply not prepared for such astonishing nonsense and concentrated instead on refuting the glowing report presented to them by the chairman of the central bank. János Volner of Jobbik pointed out that the bank did nothing until Quaestor actually went under although it had been known ever since April 2010 that Quaestor was misleading its customers. LMP’s Erzsébet Schmuck also questioned the success story reported by Matolcsy and commented on the unorthodox way the central bank operates nowadays. It was only Attila Mesterházy who had recovered enough from the shock to question Matolcsy’s accusations against the United States. He even managed to inquire whether the bank chairman had reported his knowledge of a foreign power’s meddling in Hungary’s internal affairs to the competent authorities. He called on the appropriate politicians to convene the parliamentary committee on national security to ask the Hungarian intelligence services to clarify the situation.

Well, I have a few questions of my own. My very first one would be whether Matolcsy shared the information he received about this alleged American plot with Viktor Orbán. I suspect he did and that, for one reason or another, Orbán decided that the so-called revelation was useful at this time. I wouldn’t be surprised if Orbán, banking on Donald Trump’s extremely low opinion of his predecessor’s “democracy export,” thinks that this kind of news, coming from the chairman of the Hungarian National Bank, will float in Donald Trump’s Washington.

The U.S. Embassy rarely gets engaged in arguments with the Hungarian government, but Matolcsy’s accusation was too much even for the normally calm American diplomats in Budapest. Both Népszava and Index wanted to know the U.S. reaction to Matolcsy’s garbled nonsense. The Embassy spokesman, Richard Damstra, released the following statement: “Hungary and the United States are partners and NATO allies. The United States didn’t attempt to overthrow the Hungarian government either in 2014 or at any other time and we can’t find it credible that any other NATO member state would attempt such a move.” Perhaps this will convince the Hungarian government that American diplomacy, at least for the time being, hasn’t changed all that much and that even the Trump State Department, such as it is, won’t believe that the Obama administration was planning to stage a coup in Hungary.

February 23, 2017

When a love affair is no private matter: The case of György Matolcsy

Until very recently the Hungarian media had left politicians’ private lives alone. In the last few months, however, there has been a decided change in attitude. I think it was 888.hu, a government-inspired internet site that was supposed to be hip and capture the imagination of the younger generation of right-wingers, that broke with this hands-off policy. The editor-in-chief, the notorious Gábor G. Fodor of Nézőpont Intézet, decided to publish nude photos of the wife of MSZP party chairman József Tóbiás. A few weeks later Ripost.hu, also a government-sponsored tabloid site, came out with a juicy story about János Volner, a Jobbik MP, who was found behind some bushes with a woman friend in Pécel, a suburb of Budapest. What the two were doing in the bushes was widely discussed at the time, especially in the pro-government media. So, thanks to the newly created pro-government tabloids, the taboo has been broken.

The story of György Matolcsy’s divorce and his liaison with a 31-year-old woman, Zita Vajda, has been garnering a lot of attention. The media isn’t interested in their romantic attachment. Rather, they view the story as further proof of the incredible corruption that surrounds the Hungarian National Bank (MNB) under the leadership of György Matolcsy.

Regular readers of Hungarian Spectrum are only too familiar with Matolcsy’s generosity toward his friends and family—and his family is large since there are a lot of Matolcsys. He is especially generous toward his lover, for whom he is divorcing his wife of thirty years. In fact, Matolcsy is taking care of Zita’s mother as well. It is easy to be generous with someone else’s money, especially when that money comes straight from Hungary’s central bank. Matolcsy has a track record of using bank funds for questionable purposes. The bank bought some very expensive real estate, and it transferred an incredible amount of public money from the bank to private foundations it set up, which I described as a perfect money laundering device.

Népszabadság stumbled upon the case of Matolcsy’s liaison with Zita Vajda by accident. What the paper was investigating was her fabulously high salary. She was making more money than a department head, and her job was merely to prepare and organize Matolcsy’s foreign travel and negotiations. When Matolcsy became chairman of the central bank in 2013, he fired a number of staff members, including well-qualified economists, and replaced them with his favorite associates from the ministry of the national economy. Zita Vajda was among them. Vajda’s very high salary (1,730,000 ft.) was undoubtedly the subject of gossip, and I assume that one of the employees convinced Népszabadság to investigate. It took a little while because the bank tried to stall, but eventually the paper got the information with the following sentence tacked on at the end: “György Matolcsy’s personal life and his divorce is a private matter.” Was this a mistake or was the information about his divorce, which was not publicly known, intentionally leaked? I don’t know, but it supplied another incentive to pursue the matter. And the deeper Népszabadság dug, the more dirt it uncovered.

In addition to her job at the bank, in 2014 Zita Vajda was made a board member of the bank’s Pallas Athene Domus Innovationis (PADI) foundation. A year later she became a member of the board of a corporation created by the same PADI. Népszabadság calculates that the salary of a board member of one of these foundations is 555,000 ft./month. Soon enough it became known that Zita Vajda’s mother, Mrs. Péter Vajda, an employee of a public accounting firm, takes care of the accounts of all six foundations. The company, thanks to Zita Vajda’s relationship to Matolcsy, received approximately 27 million forints from the foundations in 2015 alone. The company’s total revenue that year was only 62 million forints. Thus, almost half of the public accounting firm’s revenue came from the bank’s foundations.

Just to keep the record straight, Zita Vajda no longer works for the bank. I guess it was deemed advisable to remove her from the limelight because of the divorce and impending marriage. Ripost recently reported that the Matolcsys separated months ago and that divorce papers had already been filed. After Vajda’s departure from the bank, Matolcsy made sure that she would not suffer any financial loss. Thus, in addition to her two board member jobs, she became deputy director of the Pallas Athene Geopolitikai Alapítvány (PAGEO) and also a “researcher” in the PAGEO Research Institute. Her income from these two new jobs amounts to 1.2 million ft. /month, which doesn’t quite match the money she made at the bank. But if you add up her income from the four different sources, her salary may be as high as 2.3 million forints a month.

Of these four jobs the most intriguing is her “research position” at PAGEO to the tune of 600,000 ft. /month. As far as we know, she spent two months in India where she studied yoga. In fact, in her spare time as “international secretary” to Matolcsy, she gave yoga lessons to interested bank employees. Her knowledge of India certainly doesn’t merit 600,000 ft. per month. The top expert on India, a university professor, makes only 380,000 ft. Népszabadság discovered one short article online that she wrote about Dharavit, one of the largest slums in Mumbai. But she is no India expert. The job was created for her because of her relationship to Matolcsy. After all, the happy new couple will need plenty of money to maintain a life style becoming the Hungarian central bank chairman and his wife.

The lady seems talented--in yoga

The lady may be talented–in yoga

Matolcsy, we know, is attracted to certain Eastern beliefs/superstitions. For instance, it seems that Matolcsy believes in the ill effects of certain numbers. The number 8 has ominous consequences, and therefore he changed the official address of the bank from Szabadság tér 8-9 to Szabadság tér 9. People claim that certain rooms inside the building had to be renumbered to avoid the number 8.

Another hypothesis that’s floating about in Budapest is that Hungary’s central bank is run by a man who accepts the Tibetan Buddhist belief that there are four days in the year when positive or negative actions can be multiplied ten million times. The best description I could find of this belief came from the Kopan Monastery in Nepal. Since these days are calculated on the basis of the lunar calendar, the dates vary from year to year.

Upon hearing stories about Matolcsy and the Buddhist ten-million multiplier days, the journalists at Népszabadság began checking the calendar of important bank announcements and came to the conclusion that there might be something to the story. The article correlated these special days with important bank announcements. It is hard to know, without going over all the important decisions that have been made in the last three years, whether there is any truth to this hypothesis. I did check the dates to ascertain what day of the week we are talking about, and I found two announcements that had been made on Saturday, an odd day to pick.

Buddha stature from Sarnath / 4th century

Buddha statue from Sarnath / 4th century

Soon after the article on the strange happenings in the central bank was published, the bank’s spokesman denied the allegations and called it absurd, pointing out that since March 2013 the Hungarian National Bank has published 818 news bulletins and 455 publications. Therefore there has been hardly a day when the bank didn’t make some kind of a statement. Yes, the hypothesis may sound strange, but by now one can imagine almost anything about the affairs of the bank under the leadership of Matolcsy, who some years ago claimed that all Hungarian children, just like the Japanese, are born with a red spot on their fannies which, of course, was nonsense.

In the wake of the revelations of Népszabadság, the pro-government papers have been silent. Matolcsy and his girlfriend have disappeared from sight, and Zita shut down her yoga blog in a great hurry. The supervisory board headed by a Fidesz politician claims that it has no jurisdiction over Zita Vajda’s salary. We can be pretty sure that everything will go on as if it nothing happened in MNB, which the author of an editorial renamed Magyar Nemzeti Budoár (Hungarian National Boudoir). Another editorial, which appeared in Magyar Nemzet titled “Sötét verem” (Dark pit), emphasized that although the paper is not fond of tabloid stories and the romance between Zita Vajda and György Matolcsy is a private matter, there are times when a love affair loses its private quality. This happens when public money is involved. According to the author, “Matolcsy for a very long time has owed the public an explanation of his sundry questionable affairs.” And if he misses the opportunity to do so, “he shouldn’t be surprised if many people think that love is not only a dark pit but might also hide corruption.”

Perhaps the best line came from Zoltán Bodnár, former deputy chairman of the central bank, who has a good sense of humor. At the time of the upheaval over the establishment of private foundations by the Hungarian National Bank, Matolcsy steadfastly maintained that with the transfer of the money to private foundations “it had lost its public character.” So, when a few days ago a reporter asked Bodnár what he thought about the national bank under Matolcsy, Bodnár quipped: “it has lost its character as a central bank.”

September 15, 2016

The siphoning of public funds in Hungary

Today I will outline two cases where public money appears to have ended up in the pockets of favored individuals or in Fidesz coffers. The first case involves the Hungarian National Bank and Századvég; the second, the so-called “settlement bond program” devised by Antal Rogán.

It seems that the scandals swirling around the Hungarian National Bank are never-ending. The current scandal is the award of a tender worth 1.8 billion forints to Századvég. The loser was Koping-Tárki Konjunktúrakutató Zrt. The tender specifically stipulated that the purpose of the project was to study “economic recovery” (or konjunktúra in Hungarian) and its components. Koping-Tárki, as its name indicates, specializes in research into this particular aspect of economic activity.

Századvég’s offer was 1.8 billion forints, while Koping-Tárki would have done the job for 1.12 billion. The contract involved a working relationship with the National Bank for three years, which included monitoring world economic trends and their effects on Hungarian economic conditions. Applicants, as part of their tender, had to submit a sample study based on information released between the time the tender was issued and the time they submitted their bids.

Koping-Tárki chose to analyze the effect of lower oil prices on domestic prices of goods, economic growth, the balance of trade, inflation and, in turn, the Hungarian Central Bank’s decisions on interest rates. The maximum number of points that could be awarded for this sample study was 10. The bank’s “experts” decided that Koping-Tárki’s analysis was worth only 1 point and that Századvég’s deserved a 10. Moreover, Koping-Tárki ended up second in all the other categories, so it roundly lost the bid to Századvég.

At this point Koping-Tárki was entitled to take a look at Századvég’s winning study. In a case like this, the company that loses the bid cannot receive a copy of the document but can take notes. Even a quick glance revealed that the competitor’s work had absolutely nothing to do with monetary policy or even the Hungarian economy. It was about three innovations in the practice of medicine that were introduced in two counties of the United Kingdom: Telestroke, electronic record keeping, and tele-medicine. As for sources, Századvég ignored the demand of the bank for up-to-date data. The few sources that appeared in the study were at least two or three years old. Koping-Tárki asked for a review, which the Hungarian National Bank refused.

When the details came to light in April 2015, atlatszo.hu moved into action, asking for a copy of the public tender submitted by Századvég. Again, the National Bank refused, claiming that it enjoyed some special form of protection. The next step was to turn to the office responsible for freedom of information (NAIH). It, in agreement with atlatszo.hu, called on the National Bank to turn over the material. Meanwhile, Transparency International (TI) filed a complaint, and the Court of the Capital City (Fővárosi Törvényszék) ruled in favor of the NGO. At this point the National Bank attached a declaration by the director of Századvég claiming that the surrender of material would hurt the business interests of the National Bank. The court wasn’t impressed. Initially, it simply asked for the study. When its request was denied, it obligated the bank to turn over the material.

György Matolcsy obviously didn’t want that study to see the light of day. He decided to appeal. By that time more than a year had gone by and the affair was still not over. In mid-June 2016 the case moved on to the appellate court, which ruled on July 30 that the Hungarian National Bank must turn over copies of the documents to Transparency International within 15 days. The whole affair has taken a year and a half. This is typical of the incredible amount of effort it takes to get government agencies to release documents that according to law are public.

As we know, Századvég has the reputation of being a money launderer. Mainly through the award of government grants and contracts, billions of forints move from the government budget into the coffers of Fidesz or the pockets of individuals in high positions. But Századvég is not the only conduit for the creation of private wealth from public funds. The so-called “settlement bonds” (letelepedési kötvények) are another egregious example. As I pointed out in an earlier post, well-heeled foreign businessmen can “buy” Hungarian citizenship for about €300,000. They get €300,000 worth of five-year government bonds and pay a handling fee of €40,000-€50,000, not to government agencies but to private companies. I estimated at the time that on each bond packet the intermediary makes about €70,000. Meanwhile the Hungarian government’s only gain is the purchase price of the bonds, minus the €20,000 or so it pays to the private companies. And in selling these bonds the government incurs a debt, which must be paid back with interest. Such a “business deal” is obviously not favorable to the government. The transaction makes sense only if its primary purpose is the enrichment of chosen individuals at the expense of the state.

According to the latest information, the situation with the “settlement bonds” may be even worse than I outlined in March. The program, it turns out, was designed in such a way that those companies that receive the handling fee also act as representatives of the prospective citizens. They are the ones who actually purchase and hold the bonds. This arrangement offers plenty of room for monkey business.

Hungarian settlements bond / Source: Átlátszó

Hungarian settlement bonds / Source: Átlátszó

Some time ago 444.hu was approached by an informant who claimed that there are more bond buyers than bonds purchased. The online paper asked for details from the Államadósság Kezelő Központ (AKK), the office that is involved in matters connected to the national debt. Surprisingly, AKK obliged fairly promptly and released details of the program. During 2013-2014, 2,347 people received permission from the ministry of interior to settle in Hungary as a result of the bond buying program, but AKK sold only 2,213 packets. That is, 134 packets are missing. That is a lot of money because each bond packet costs €250,000, which means the disappearance of 33.5 million euros. Did the friends of Antal Rogán and Árpád Habony, who buy and hold the bonds on behalf of their clients, stiff 134 foreign businessmen? I don’t know, but somebody has a lot of explaining to do.

August 2, 2016

Another government shake-up: Greater confusion guaranteed

János Lázár has been the focus of a great deal of media attention of late. His often provocative behavior and his less than diplomatic comments about fellow politicians and important oligarchs made a lot of political observers wonder when Viktor Orbán will deem it necessary to shove his currently number one man into the background. The discussion over Lázár’s political future gained intensity last fall with the appointment of Antal Rogán as chief of the Prime Ministry’s Cabinet Office, nicknamed Viktor Orbán’s propaganda ministry, which was created especially for Rogán. Some people believed that the creation of this new office weakened János Lázár’s position. There were also reports that Lázár was not too keen on the idea of placing another center of power inside the Prime Minister’s Office.

Speculations over Lázár’s future flared up again when a week ago he announced the retirement of Mrs. László Németh, undersecretary in charge of financial services and postal affairs. Her appointment as minister of national development in 2010 caused quite a stir. She was an absolute unknown without much educational background. But she was Lajos Simicska’s close friend and business partner. Through her Simicska pretty well controlled the whole ministry of national development. In 2014 Orbán, who was obviously already thinking of loosening Simicska’s influence over financial matters, replaced her with Miklós Seszták. Surprisingly, this was not the end of Mrs. Németh’s career. Orbán found a place for her in the Prime Minister’s Office. Mrs. Németh hasn’t yet reached the official retirement age of 65, and therefore I assume that her “retirement” wasn’t exactly voluntary. But Fidesz will find a job for her somewhere else.

Mrs. Németh’s “retirement” is probably not related so much to the Orbán-Simicska fallout as to the so-called Spéder case, about which I wrote earlier. The case is very complicated, but the most likely explanation for Viktor Orbán’s ire and his decision to unseat one of his formerly favorite oligarchs was Spéder’s less than subservient behavior toward his benefactor. Certain financial transactions were made that, in Orbán’s opinion, hurt his government’s interests. It was Mrs. Németh who was supposed to keep an eye on Spéder, which she failed to do. At least this is the most likely charge against her.

But what does all this have to with János Lázár? Quite a bit. First of all, a week ago Lázár announced that Zoltán Spéder is his friend, whom he is not going to abandon. According to rumor, the police have taken, among other things, taped telephone conversations between Simicska and Spéder, which were most likely recorded by Spéder. Whether this rumor is true or not, most likely in Orbán’s head there is a connection between Simicska, Spéder, Mrs. Németh, and perhaps even János Lázár.

In record time Mrs. Németh was replaced by Andrea Bártfai-Mager and was given the title of government commissioner, a position that carries ministerial rank. Bártfai-Mager is a member of the National Bank’s Monetary Council, so György Matolcsy, chairman of the bank, may well have recommended her for the job. Most significantly, Bártfai-Mager will not be under the supervision of the head of the Prime Minister’s office, János Lázár, but will report directly to Prime Minister Viktor Orbán.

Mrs. László Németh and her replacement, Andrea Bártfai-Mager / Source: 444.hu

Mrs. László Németh and her replacement, Andrea Bártfai-Mager / Source: 444.hu

With these changes Lázár will lose power over important sectors of the government edifice: the affairs of the Hungarian Development Bank and 18 state-owned companies associated with it; the Hungarian Postal Service, which unlike its American equivalent is an important financial institution; and the integration of the credit unions, which used to be handled by Spéder. Lázár will end up looking after such things as public administration, rural development, EU subsidies, national policy, and heritage conservation.

Although strictly speaking it is an entirely different matter, I should mention in passing that it also looks as if the troublesome issue of the House of Fate, a kind of Holocaust Museum Orbán style, which was most likely Lázár’s idea in the first place, will be taken out of his hands. The task of doing something with the brand new, impressive building, which has been standing empty for well over two years, will be assumed by Zoltán Balog’s already overburdened ministry of human resources.

There is widespread consensus in Hungary that Orbán is heading a government that functions very badly. He himself seems to realize its shortcomings. But his usual fix is to change the government’s structure. He makes ad hoc decisions on structural changes, decisions that by now have resulted in a bloated government and total chaos. Dozens and dozens of government commissioners and over one hundred undersecretaries with all sorts of special jobs have only increased bureaucracy. The talk is always about efficiency and reducing the number of civil servants, but the number of political appointees keeps going up.

Now, it seems, Viktor Orbán has come up with yet another reorganization of the government. The announcement, which was totally unexpected, came from János Lázár this afternoon at his regular Thursday government “info.” He said very little about the details, not because he tried to be secretive but because I suspect he himself doesn’t know much about the impending changes.

So, what’s in the offing? I think Index put it best: “Orbán turns everything upside-down: he is creating two little governments.” Yes, this is the gist of it as far as I can ascertain. As it stands now, once a week the ministers and their undersecretaries get together for what we in English would call a cabinet meeting, presided over by Viktor Orbán. In Hungarian it is called “kormányülés” (government meeting). It is here that final policy decisions are made.

Now, in addition to this group, Orbán will create two “cabinets.” One will be called “gazdasági kabinet” and the other “stratégiai kabinet.” These cabinets will have wide decision-making powers. The idea is that these cabinets, whose membership will vary depending on the subject matter discussed, will allow government officials to focus on important questions in greater depth.

Such an arrangement might make sense if these “cabinets” had only an advisory role, but I don’t see how the decisions of the weekly meeting of ministers and those of the lower-level cabinets can be brought together into a cohesive whole. I’m convinced that the chaos and confusion that now exists in the Orbán administration is nothing compared to what will happen when two mini-governments compete with the real “cabinet.” I don’t know whether such an arrangement exists anywhere else in the western world or whether Viktor Orbán’s latest brainchild will have the dubious distinction of being a unique addition to his illiberal state.

July 7, 2016

György Matolcsy, a headache for Viktor Orbán

In the last few weeks György Matolcsy, chairman of Hungary’s central bank, appeared before parliament twice, and his performances there have been the butt of jokes.

The Hungarian National Bank is supposed to be an independent entity in the sense that its chairman cannot be instructed either by the government or by parliament as far as its monetary policy is concerned. Parliament can, however, exercise a supervisory function over the bank’s activities. Given the recent scandals surrounding the Hungarian National Bank, Matolcsy was required to answer questions from the floor.

On both May 17 and June 13 Matolcsy was asked about the details of the bank’s foundations and the billions these foundations either lent or gave away to Matolcsy’s friends and family members. On both occasions, MSZP’s Gergely Bárándy posed the questions, questions that Matolcsy either couldn’t answer or refused to answer. He simply brushed them aside and repeated three times: “Sham! Sham! Sham!” He declared that anyone who attacks him and the National Bank is doing great harm to the Hungarian currency. In return, Bárándy called him a liar. A few days later the Hungarian National Bank’s press department announced that Chairman Matolcsy is suing Bárándy for slander.

György Matolcsy at his appearance in the parliament on May 17 / MTI / Photo: Tibor Illyés

György Matolcsy at his appearance in parliament on May 17 / MTI / Photo: Tibor Illyés

This first performance was followed by a second, when again the opposition pressed Matolcsy regarding the money that was passed to the small bank of Tamás Szemerey, who happens to be Matolcsy’s first cousin. MSZP members of parliament also wanted to know what Szemerey’s wife was doing on the board of one the central bank’s foundations.

Matolcsy’s answer was curious to say the least. He has many cousins who have not received any money from the Hungarian National Bank. For example, László Trócsányi, the current minister of justice, is also a cousin through the Darányi and Héjjas families. Moreover, Márton Kasnyik, a journalist at 444.hu who is very critical of him, is also a cousin. Trócsányi, “although he greatly admires the bank chairman,” rushed to correct the record. He is in no way related to Matolcsy, he said, although Matolcsy had earlier claimed that the information about the family ties came from Trócsányi himself. As for Kasnyik, Matolcsy’s claim is far-fetched. Their last common ancestor lived sometime in the eighteenth century.

Bárándy didn’t stop at family ties. He also asked the bank chairman about numerology. He wanted to know whether it is true that Matolcsy has something against the number 8, and whether it is true that he banished the offending number both inside and outside of the bank. No more Room 8 inside. And the official address of the bank was changed from Szabadság tér 8-9 to Szabadság tér 9. Also, Bárándy wanted to know whether it is true that only people who were born on August 20, 1984 can work in the secretariat of the bank. Matolcsy’s reaction was one of great indignation. But instead of denying the rumors, he simply insisted that his antagonists are concocting conspiracy theories against him.

It was at this point that people began to question the mental competence of the bank chairman, including Gergely Bárándy himself who expressed his doubts about Matolcsy’s mental state on ATV’s Egyenes beszéd (Straight Talk).

Before I return to Matolcsy’s more serious problems, let me insert a bit of family history here. The Matolcsy genealogy was thoroughly researched by a relative, and the almost 100-page family tree is quite impressive. Students of history know the Matolcsy name mainly because of Mátyás Matolcsy (1905-1953), apparently a brilliant economist who ended up as a far-right politician in the 1930s and 1940s. He became a member of the Arrow Cross party and in 1946 received a ten-year jail sentence. He died in jail. Mátyás is only a distant relative of György.

It is a mystery why Matolcsy felt compelled to bring up the Darányi and Héjjas families. Kálmán Darányi, prime minister of Hungary between 1936 and 1938, is associated with the radical right in Hungarian politics, especially during the second half of his premiership when he appointed Germanophile politicians to his cabinet and had a hand in the preparation of the First Anti-Jewish Law. As for the Héjjas family, Iván Héjjas is synonymous with the White Terror. While Pál Prónay was in charge of the summary executions in Transdanubia, Héjjas was at the helm in the territories between the Danube and the Tisza rivers. Search me why a sane man would brag about such a lineage in connection with an alleged relative who turned out not to be a relative at all.

Turning back to the pressure being brought to bear on Matolcsy. After two years of wrangling in court, the Hungarian National Bank was ordered to release a study Századvég did for the bank for the modest sum of 1.8 billion forints. It turned out that the study the bank received had nothing whatsoever to do with the topic Századvég was supposed to analyze. It was, it seems, just another instance of money being laundered through Századvég with the assistance, in this case, of the National Bank.

Yesterday Matolcsy received a letter from Mario Draghi, chairman of the European Central Bank, who explained again that “Article 123 TFEU prohibits the ECB and national central banks from purchasing public debt instruments directly on the primary market.” In brief, the Hungarian central bank cannot invest in government bonds even if they are purchased on the primary market by its foundations.

And one final note. There are people of some importance in the Fidesz ranks who have reservations about Matolcsy’s activities. One is Gergely Gulyás, one of Orbán’s deputies, who is usually an eloquent defender of everything the Orbán government does. So when he says that “there have been some questionable financial decisions by the foundations,” it must mean that not all the Fidesz bigwigs support Matolcsy, that they are worried about the troubles his activities have brought to the party. Further proof that Gulyás must have reservations about the increasingly shady affairs of the government and other Fidesz-controlled institutions like the prosecutor’s office or the National Bank is that in a recent interview he admitted that several times he had toyed with the idea of leaving politics altogether. Indeed, this articulate, smart, always impeccably dressed “young gentleman,” coming from the upper middle class of the Buda bourgeoisie (budai úri fiú), simply doesn’t fit in with the likes of the brutish Szilárd Németh, his fellow deputy chairman of Fidesz. He comes across as someone who, in a different setting, would be a traditional conservative, and a conservative could never feel entirely at home in Fidesz.

June 16, 2016

György Matolcsy, the engine of the Hungarian economy, has his admirers

The first quarter year-over-year 0.5% GDP growth apparently shocked Viktor Orbán. He immediately convened an extraordinary cabinet meeting to discuss the situation, which put Hungary among the worst performing countries in the European Union. Later government communication tried to calm nerves by denying Orbán’s panicky response to the bad economic news, but the meeting definitely took place.

It is possible that the news was a surprise to Viktor Orbán, but people familiar with recent economic trends should have been prepared for slower growth than projected. In the last quarter of 2015 industrial growth was 2.4% lower than a year before, and in the first three months of 2016 the numbers were even worse: 4.5% lower than the same time in 2015. According to forecasters, the dismal economic growth just announced is most likely not a fluke. Analysts predict similar figures for the second quarter of the year as well. One of the problems is that 25% of the Hungarian GDP comes from conventional auto manufacturing, which is shrinking due to the emergence of electric cars. This means a 6% reduction in production at Audi and Mercedes Benz, which will perpetuate the present situation. According to government estimates, the Hungarian economy is supposed to grow by 1.7% this year, which is unlikely. High officials of the Hungarian National Bank, however, are even more optimistic. They are dreaming of 3% GDP growth for 2016. Some of the data actually point to a possible recession.

This news couldn’t have come at a worse time. The unorthodox economic policy introduced by György Matolcsy as minister of the economy (2010-2013) seems to be crumbling just when the same Matolcsy, as chairman of the Hungarian National Bank, is in serious political trouble due to his handling of the reserves of Hungary’s central bank. To put it in the starkest terms, Matolcsy in great secret siphoned off about one billion dollars from money accrued as a result of the weakening Hungarian forint and put it into private foundations.

Common wisdom holds that the Hungarian people are so inured to the widespread corruption in the country that they cannot be aroused by any scandal, no matter how large. The latest poll by the Publicus Institute, however, indicates that the Matolcsy case is an exception to the rule. Another tenet of conventional wisdom is that Hungarians are terribly under-informed. Most of them have no understanding of current political events. Well, in the case of Matolcsy’s foundations this notion also turned out to be false. Two-thirds of the people had heard about the scandal, and of those who were familiar with the case 65% considered Matolcsy’s “unorthodox” handling of the central bank’s money outrageous while 58% thought that the bank chairman should resign. Moreover, and this is bad news for Viktor Orbán, 58% of those questioned considered the government responsible for the scandal around Matolcsy’s foundations and only 17% blamed Matolcsy alone.

Given the delicate situation in which Matolcsy and the Hungarian government have found themselves, the last thing they needed was the interview Csaba Lentner gave to 168 Óra, a weekly. Lentner is currently a professor of economics at the Nemzeti Közszolgálati Egyetem (National Civil Service University), a creation of the Orbán government. Lentner had a “colorful” political career, starting off as an economic adviser to the Smallholders’ Party’s parliamentary delegation but in 1997 becoming one of the top officials of the anti-Semitic MIÉP, the creation of István Csurka, a writer and playwright of extremist views. Between 1998 and 2002 he was a MIÉP member of parliament. In 2004 he switched over to Fidesz. As he said in the interview, he is a slow maturing type. Since then he has been serving Fidesz as an expert on economic matters.

What does Lentner have to do with Matolcsy? Plenty. Believe it or not, our diligent bank chairman in his spare time is writing a Ph.D. dissertation. And who is his adviser? None other than Csaba Lentner. But that’s not all. Lentner is also a member of the board of one of the foundations György Matolcsy created. So corrupt and disgusting, but obviously, as it was evident from Lentner’s interview, the two men find the arrangement perfectly normal and acceptable. Válasz, a right-wing publication, considered the interview a gift to the opposition because Lentner’s profuse praise for the chairman was embarrassing for Matolcsy himself.

Lentner on the cover of the right-wing Demokrata "We don't give up the war of independence

Lentner on the cover of the right-wing Demokrata
“We can’t give up the war of independence”

From the interview we learn that the current economic policy of the country is still in the hands of Matolcsy, who as bank chairman is supposed to be concerned only with monetary policy, i.e. money supply, interest rates. In Lentner’s opinion Mihály Varga’s ministry of national economy, which is supposed to be in charge of the government’s fiscal policy, is too slow and ineffectual. “The real economic decisions are made in the National Bank.” Because of the “weakness” of Varga’s ministry it was the National Bank that made the 3% economic growth in 2014 possible by giving three trillion forints for low-interest loans and keeping interest rates low overall. Since 2013, when Matolcsy took over the chairmanship of the bank, “a monetary regime change has taken place.” Matolcsy has become “the engine of the national economy.” In Lentner’s mind Matolcsy is a true genius. It is the “intellectual munition he carries in his head that moves the [Hungarian] GDP.”

Those who are against Matolcsy are traitors to the cause of Fidesz and the Orbán government. Matolcsy’s continued work at the head of the National Bank is the guarantee of Fidesz winning the 2018 national elections. Lentner is certain that in the next two years Hungary’s economic growth will be spectacular. Obviously, the dismal numbers of late make no difference as far as he is concerned.

For Lentner, the members of the Constitutional Court who found Matolcsy’s foundations unconstitutional are traitors who “stabbed him in the back.” Matolcsy has achieved a series of great successes, or, as he put it, he carried out “six years of a victorious military campaign in which we win battle after battle. Matolcsy is the alpha and the omega of the 2018 elections.” He deserves a public statue to demonstrate the outstanding service he has rendered to his country. One could ask why a man of such outstanding mental qualities needs a Ph.D. The answer: “in order for him to make his name great for many centuries,” for which it is necessary “to organize the means of non-conventional economic policy into a scientific system.” I’m so glad that with Csaba Lentner’s guidance this great man will formulate a revolutionary economic theory that will change the face of the world.

I found an article on Jobbik’s internet news site called Alfahír. I usually view their news items with suspicion, but this story about Matolcsy sounds plausible. Matolcsy was named political undersecretary in József Antall’s government on May 24, 1990, but a few months later he left the prime minister’s office by mutual agreement. The likely reason for his sudden departure was the revelation by a member of parliament on October 30, 1990 that Matolcsy was involved in the shady privatization of 90 restaurants owned by the state. It looks as if József Antall had no problem firing someone whom he found to be involved in unethical business ventures. If the suspicion about Matolcsy’s sudden departure from the prime minister’s office is well founded, Matolcsy’s not always straight business dealings are not of recent vintage.

May 29,2016