Tag Archives: Hungarian National Bank

Developments in the Hungarian National Bank corruption case

One goes for a little outing to Felcsút to admire that lovely little choo-choo train and what happens? The Hungarian public learns that, at least in the case of the Pallas Athene Domus Animae Foundation, György Matolcsy, chairman of Hungary’s National Bank (MNB), was directly involved in making its financial decisions. This flies in the face of the official story–that once the Hungarian National Bank parted with 260 billion Hungarian forints (almost $1 billion) of public money the management of the bank had no say in the affairs of the foundations.

Let’s start with the backstory, how the very existence of the MNB foundations and the extent of their funding was unearthed. The information initially came in a letter to the editor of HVG in the summer of 2014, shortly after the foundations were established. The letter called attention to a number of foundations established by the Hungarian National Bank and even mentioned the sum of money that had landed in these foundations. But the amount was so huge that the journalist assigned to the story was certain that the 200 billion forints mentioned in the letter must be either a typo or a figment of the letter writer’s imagination. It was far too large a figure. In August 2014 the journalist, Károly Csabai, who now works for Világgazdaság, started digging into the funding of these foundations. A law suit demanding that the National Bank reveal financial details of the foundations ensued. Verdict after verdict went against the bank, but it kept appealing. It wasn’t until March 2016 that the Kúria, the highest court of the land, declared that MNB had reached the end of the line. It must hand over the information.

Even as the MNB was meeting resistance in the courts, the foundations continued to hand out money without worrying about possible consequences. Perhaps György Matolcsy simply believed that the bank would be able to keep its foundations’ activities secret. People who know him say he is a modern-day Pangloss who believes that everything will turn out just fine regardless of how hopeless things seem. Perhaps he was also encouraged by the lawyers of the bank who were convinced that even if they lose the suit the arrangement would ultimately withstand legal scrutiny. But things are starting to fall apart.

In addition to the media, Bertalan Tóth, an MSZP member of parliament, has been pressuring the central bank via the justice system for more information. Today at last he received the documents concerning the financial decisions of Pallas Athene Domus Animae (PADA). The chairman of that particular foundation was Matolcsy himself, and the documents reveal that all investment decisions were the exclusive right of the chairman. That in itself is bad enough, but what is truly embarrassing is that the bulk of PADA’s money (well over 60 billion forints) was kept in the tiny little bank of Matolcsy’s cousin, Tamás Szemerey. And, worse yet, the foundation lent money to the struggling bank, presumably to avert liquidity crises, at a lower interest rate than the national bank’s stated rate at the time. It is noteworthy that Szemerey’s bank lent a substantial amount of money to Matolcsy’s son Ádám to enable him buy a furniture factory that would otherwise have been way beyond his means. I guess we can say that, in an admittedly indirect way, the Hungarian National Bank financed Ádám Matolcsy’s business venture.

Bertalan Tóth has also calculated that the foundations, by buying government bonds, added the equivalent of 0.7% of the Hungarian GDP to the national budget. In this way they massaged the size of the deficit. Last year’s official deficit was 2.5%, but without the extra money pumped into the budget by the foundations, it would have been over the 3% allowed by the European Union.

Bertalan Tóth and others wanted to question Viktor Orbán and György Matolcsy in parliament today. Neither of them showed up. Matolcsy sent one of his hapless deputies to answer the questions he was supposed to answer himself. András Schiffer of LMP demanded Matolcsy’s resignation from Viktor Orbán, who was also busy elsewhere. In his place András Tállai, undersecretary of the ministry of the economy, claimed that the government has absolutely nothing to do with the central bank. This is true in the sense that the government cannot dictate the bank’s monetary policy. But here we are talking about the questionable financial activities of the bank. Since the bank is owned by the Hungarian government, the government is responsible for any mismanagement that might take place at the MNB. Tóth compared the managers of the Hungarian Bank to the characters in the 2013 American movie The Wolf of Wall Street. His fellow MSZP member of parliament Lajos Korózs called the Hungarian National Bank “the residence of criminals,” saying its decision makers were planning to steal most of the money they deposited in the foundations.

So far Fidesz doesn’t have a competent point man to deal with this scandal. Lajos Kósa, who replaced Antal Rogán as the leader of the party’s parliamentary caucus, is famous for his bungling linguistic performances. This was certainly the case today when Index’s Szabolcs Dull pumped him for his reaction to the documents that demonstrate Matolcsy’s critical role in the financial affairs of PADA. Kósa, after some long and incomprehensible blabbering, could only fall back on the claim that “this assertion has not yet been ascertained” when the facts are there in black and white for everybody to see. The whole pitiful performance is available on the website of Index.

Lajos Kósa explains his interpretation of the connection between György Matolcsy and his foundations

Lajos Kósa explains the connection between György Matolcsy and his foundations

All in all, this is a case that will haunt the Orbán administration for a while. A few days ago the top brass of Fidesz expressed their relief because, according to their poll, only 10% of the electorate had heard anything about the central bank’s foundations. Moreover, they figured that the whole case is far too complicated for the man on the street to comprehend. I wouldn’t be so sanguine in their place. First of all, the scandal can only grow as Matolcsy will have to release ever more information. For example, there are all those “private persons” who received money from the foundations. So far their names haven’t been revealed, but pressure is mounting to release their identities. Moreover, ordinary folks don’t need fancy explanations about private as opposed to public money. It is enough for them to understand that these people, along with their friends and families, stole a heck of a lot of their hard-earned money.

May 2, 2016

Numerology and chugging along

This morning I had a delightful brunch with a group of friends, among them a Hungarian visitor to this country. In between serious conversations about democracy and checks and balances we joked about some of the idiosyncrasies of the actors on the Hungarian political stage. When I said that I still had no idea what I was going to write about today, they urged me to say something about György Matolcsy’s crazy ideas and Viktor Orbán’s childish dream. So, I’m obliging.

The sharp-eyed Jenő Veress of Népszava is one of my favorites. He is a man with a fantastic sense of humor who delights his readers practically every day with short op/eds, usually about some ridiculous aspect of Hungarian political life. A few days ago he noticed that the address of the Hungarian National Bank is no longer Szabadság tér 8-9. It is simply Szabadság tér 9. The change seems to be so important to Matolcsy that he ordered the employees of the bank to change their business cards. Moreover, according to the personnel of the bank, all rooms that earlier were marked with the number 8 are now labeled 7/1 or 7+1.

Well, I decided to look into the numerological meaning of the number 8, and I learned that it is associated with “money and power.” As one of the sites claims, “the 8 is the great Karmic equalizer, a force that you will reap what you’ve sown.” That sounds pretty ominous to me and perhaps also to Matolcsy. Another source’s interpretation sounds outright frightening: “If you often face obstacles, meet with accidents, and feel unlucky, you are ruled by No. 8 and Saturn. Numerology for 8 when exalted makes you a saint. When afflicted it makes you a proficient criminal.” Well, what do you think of that?

Of course it’s bonkers, but Matolcsy is apt to believe all sorts of nonsense. Do you remember his infamous “red spots”? In 2012 he came up with a story he allegedly heard from Japanese scientists. According to these learned men, 30% of all Japanese and Hungarian babies are born with a “small red dot on their bottoms,” so Japanese-Hungarian economic cooperation is even genetically determined. Soon enough we learned that these spots are not red, not small, and not round, as Matolcsy claimed. Instead they are blue, can be quite large, and are of irregular shape. They are common among East Asians, Southeast Asians, Polynesians, Native Americans, and East Africans. But not among Hungarians.

A year earlier he made the claim, referring to unnamed Persian and Byzantine sources, that Hungarians’ ancestors couldn’t be rivaled in gastronomy and brain surgery. Yes, brain surgery. So, the man is an odd bird with many crazy beliefs. Why not numerology?

Matolcsy also suffers from an excessive concern for his own safety. In the fall of 2015 he allocated 200 million forints for the creation of a security force whose sole job was guarding the VIP of the Hungarian National Bank. A few months later another 140 million forints was spent on a second force for the security of the deputy chairmen, including constant surveillance of their residences. The bank bought several hundred guns and 200,000 rounds of ammunition.

Matolcsy is not the only man who suffers from an excessive fear of ordinary Hungarians. Viktor Orbán is well known for his paranoia. Even when he was the leader of the opposition he hired several body guards, and rumor had it that on October 23, 2006, knowing darned well that there would be trouble on the streets of Budapest after his fiery speech against the government, he escaped as soon as possible in a borrowed armored car. Eagle-eyed observers are certain that he sometimes wears a bullet-proof vest, and I suspect that his VW mini-bus is armored. He seems to be so afraid that, even inside the parliament building, while walking the corridors between rooms, he is followed by four body guards. And let’s not forget that one of his first acts as prime minister in 2010 was the creation of TEK (Terrorelhárító Központ), which was a force of hundreds of highly-trained men whose sole job was the security of the great man.

Oh, yes, TEK. Dozens and dozens of members of TEK worked overtime yesterday at the opening of Viktor Orbán’s mini train line. At the moment the narrow-gauge train can take passengers from Orbán’s Pancho Aréna in Felcsút to the Arboretum that was created by Archduke Joseph of Habsburg, whose former estate now belongs to the Orbán family and their friends. The whole length of the line is only 5.7 km. Orbán would like to extend it to Bicske, from which another leg to Székesfehérvár would be a cinch. And from there passengers could go all the way to Vienna. From Felcsút to Vienna. What a thrilling prospect. And how economically promising.

Orbán's train

Only a select few could participate in the opening run of the train. As a gift to Felcsút, three children from each class of the Felcsút elementary school were chosen to join the illustrious crowd. Those who had not been invited but who came out of curiosity were not allowed near the great man. Nor were the members of the media, who could watch the prime minister only from afar. The sole thing they could report was that he gesticulated a lot.

Apparently, Orbán was somewhat agitated because he is angry at those who don’t understand the importance of this project. These nay-sayers are cynics who don’t appreciate his efforts at building a prosperous Hungary. The audience also learned why rebuilding this railroad was so important to Orbán. It turned out that the Orbán family lived at the very edge of Alcsút. The train, which still functioned in his childhood, went by right next to their house. He was especially fascinated by the inspection trolleys that periodically checked the lines. He still hopes that one day he will be able to drive one. The railroad had to be rebuilt, he said, because “the communists closed it.” A lame excuse for reliving his childhood memories.

The European Union obliged in fulfilling the Hungarian prime minister’s dream. Brussels contributed 600,000 million forints for the construction, although, according to the terms of the grant, if the annual number of passengers does not reach 10,000 the money will have to be repaid. I suspect it will not be terribly difficult for the Puskás Academy Foundation, the owner of the railroad, to come up with a number that will satisfy the European Union.

There were a couple of problems even on the trial run. One of the semaphores stopped working, and the train had to stop when two female DK activists lay on the tracks and the police had to drag them off.

Today the passengers didn’t have to pay the fairly steep price of a ticket–1,000 forints for adults (more than $3.50) and 600 forints ($2.20) for students–for a twenty-minute ride from nowhere to nowhere. Today’s visitors, among them many children, were not exactly thrilled to learn that no one knows when the trains depart or when they arrive. Moreover, for no discernible reason, half-way through the trip, in Alcsút, the train sat idle for 15 minutes. While waiting for the train at the stations (there are three of them), children are provided with no entertainment. But some clever children discovered that Orbán’s train looked almost identical to the Chuggington trains on a BBC’s children program or, what I’m more familiar with, PBS’s Choo-Choo train.

choo-choo train

PBS’s Choo-Choo Train

Chuggington

BBC’s Chuggington

There is not much to see along the route, but some people were happy to discover that one could get a pretty good look at the Pancho Aréna, which normally cannot be approached by sightseers.

Finally, let me report my sad discovery last night that Puskás Academy was just booted from the NB1 category of soccer clubs. It seems that money isn’t everything. All the money that pours into Orbán’s foundation can’t make up for a lack of talent. The same is true about governance. No matter how much the Orbán regime steals from the Hungarian people, they are unable to provide a better life for the country’s citizens. The talent for governance is missing.

May 1, 2016

Letting the fox guard the henhouse: Hungarian prosecutors undermine justice

The thread that connects today’s topics is the state of the Hungarian legal system. As it stands, Hungary has a thoroughly corrupt prosecutorial system and a judiciary that at times shows itself to be truly independent despite considerable pressure from the executive branch. All three topics I’m addressing today are in one way or the other connected to these two branches of the legal system.

Let me start with a surprising verdict handed down today by the Budapest Court of Justice. Altus Zrt., Ferenc Gyurcsány’s company, sued Viktor Orbán because in May 2015 Orbán claimed that Altus is a bogus company created for the sole purpose of generating revenue from the European Union to finance Gyurcsány’s party, the Demokratikus Koalíció. Altus is actually managed by Gyurcsány’s wife, Klára Dobrev, an economist and law professor who teaches banking and financial law. The firm received, in an open bid process, a large contract from the European Union to evaluate the use of subsidies by member states and to suggest solutions for their more effective use. Given the political atmosphere in Hungary, Altus, regardless of the quality of its associates, can’t get jobs in the country and must offer its consulting services abroad.

Altus decided to sue Viktor Orbán for slander. Today the Budapest Court of Justice declared that Viktor Orbán’s claim was false and ordered the prime minister to refrain in the future from similar libelous statements. He will have to pay Altus 270,000 forints for court costs. And finally, and this is the one that must hurt Orbán the most, he has to openly express his regret for ever having made such a statement. I don’t know who that brave judge was, but the verdict is simply breathtaking. No one remembers such a verdict against a sitting Hungarian prime minister. Of course, this decision is not final. I’m sure it will be appealed.

Viktor Orbán must be livid. Fidesz immediately released a statement which, in total disregard of the verdict of the court, declared that “even a blind man can see that Ferenc Gyurcsány is financed from Brussels.” Fidesz’s spokesman quickly segued into Péter Medgyessy’s business transaction with Alstom, the French company that provided cars for the new Budapest metro line, the M4. “On the left only the companies and the size of the bribes change, the essence remains. Both Gyurcsány and the other socialist prime minister [meaning Medgyessy] conducted business through their wives. We are looking forward to Gyurcsány’s answer about how much money he received from the bribe of Alstom because, after all, it was during his premiership that the Alstom contract was signed.” Well, it is time for Gyurcsány, who a few years back swore that he would sue anybody who falsely accuses him of anything, to start proceedings again, this time against Fidesz.

That takes us back to the Medgyessy case, which I already mentioned in a post. Since then ten articles dealing with Medgyessy’s involvement with Alstom have appeared in Magyar Idők. The government obviously finds the case extremely useful politically. But how did Magyar Idők get hold of the story in the first place? The articles that appeared in the government paper are based on detailed information, including individual bank transactions. It is unlikely that the source of the information is the Medgyessy couple’s bank. We mustn’t forget that in the last couple of years the Hungarian prosecutor’s office has been investigating Alstom’s possibly illegal activities in Hungary in connection with the metro cars. So it is highly probable that Magyar Idők, just like its predecessor Magyar Nemzet, received the documents directly from the prosecutor’s office, headed by Péter Polt, chief prosecutor of Hungary and an old friend and protector of the prime minister. And this is a crime.

Marianna Polt-Palásthy

Marianna Polt-Palásthy

One cannot overemphasize the importance of Polt to Orbán’s system. It is no exaggeration to say that without Polt, or someone as crooked and loyal as he is, Orbán’s mafia state would have collapsed a long time ago. He is the one who stands between Viktor Orbán and justice and ultimately jail. So, it’s no wonder that Polt receives special treatment. A few months ago we heard that TEK, Orbán’s private bodyguard, will also guard this precious man, who is not entitled to such protection by law. And a few days ago, thanks to the documents released by the Hungarian National Bank’s foundations, we learned that Polt’s wife, Marianna Polt-Palásthy, personnel director of the bank, is also the chair of the board of Pallas Athéné Domus Scientiae, a member of the board of Pallas Athéné Domus Mentis, and a member of the Kecskeméti Duális Oktatás Zrt. She was hired by György Matolcsy in 2013, originally with a salary of 2.3 million a month, but by now she makes five million. Matolcsy’s salary was just raised to five million. So, while the chairman of the bank was making only two million, the director of the personnel department made five million. I wonder why. (Oh, those wives….) We also mustn’t forget about the extra remuneration for her jobs on the foundations’ boards.

And one more story about the Hungarian prosecutor’s office. It has something to do with the Quaestor scandal about which I wrote a year ago. The Quaestor affair is often described as Hungary’s Madoff case, except that here it is likely that the Orbán government itself was involved. Several ministries invested in Csaba Tarsoly’s pyramid scheme, and to the very last minute before the company collapsed Tarsoly was hoping for, and expecting, a government bailout. In brief, a thorough investigation of Csaba Tarsoly’s fraud case is not to the advantage of the Orbán government. And that takes us to our next story.

The victim's of Tarsoly's pyramid game The sign reads: "Orbán get lost and take your cronies along"

The victims of Tarsoly’s pyramid game
The sign reads: “Orbán get lost and take your cronies along”

It is becoming an everyday occurrence that the prosecution’s cases are so poorly prepared that cases that seem very strong even to outsiders are lost time and again. One of the worst offenders is Budapest Chief Prosecutor Tibor Ibolya who, contrary to his family name, is anything but a “violet.” In fact, he has gotten into all sorts of trouble with the courts and judges for speaking in ways the judges found unacceptable. In the Quaestor case Ibolya’s office dumped thousands of documents, absolutely unsorted, into the lap of the judge, not even indicating which documents supported what charge. Among the documents the judges found music, private documents, and photos that had nothing to do with the case. The court sent the whole mess back, asking Ibolya’s office to put their case together in a proper manner because what the court received was useless. Thus far Ibolya refuses to oblige. But the court isn’t budging either. If there is no action by May 31, the whole case against Tarsoly will be dropped. The suspicion is that this is exactly what the prosecutor’s office, with the active encouragement of the Orbán government, wants.

And one final word. It is Péter Polt’s office that is supposed to investigate the legality of the establishment of the Hungarian National Bank’s foundations even as his wife is deeply involved in and profits from the whole illegal scheme.

April 29, 2016

The Orbán regime’s reaction to the scandal at the Hungarian National Bank

The Hungarian National Bank cagily released the documentation on its foundations’ grants and contracts Friday night after 5 p.m., but the timing didn’t help much. The outcry was immediate. And ever since, more and more revelations have been adding fuel to fire, from the grants given to relatives of György Matolcsy to the extra money that went to the wife of Chief Prosecutor Péter Polt. (In addition to her regular job as one of the department heads of the bank she also sits on the boards of several foundations.) The opposition, including Jobbik, is up in arms. All parties demand an investigation as well as the abolition of the six foundations which, by all accounts, were established illegally.

News travels fast, especially nowadays. The Financial Times carried the story of the resignation of the journalists at vs.hu on its front page. The New York Times and the Washington Post also covered the story.  Bloomberg had a complete rundown on Chairman Matolcsy’s machinations with the almost one billion U.S. dollars that was moved from the assets of the National Bank to private foundations. If something like this had happened in western Europe, it would undoubtedly have resulted in the resignation of the chairman of the central bank and perhaps even the whole government. In Hungary, however, nothing of the sort will happen. As Lajos Bokros, the former finance minister, put it when asked about the consequences, “I have no illusions. As long as we are saddled with the Orbán regime, nothing will change.”

Despite the many juicy stories surrounding this case, we shouldn’t get bogged down in details. The important thing to keep in mind is that the very establishment of these foundations was illegal. Bokros in a post on Facebook summarized the legal objections to Matolcsy’s “unorthodox” handling of the assets of the central bank. (1) All money that is accrued over the fiscal year by the bank must be put into the budget of the Hungarian state. Matolcsy, in office now for three years, has not been doing this. (2) The National Bank cannot establish foundations because by doing so it siphons public funds from the budget. (3) The Bank cannot utilize funds for public purposes because the utilization of public funds can be done only with the approval of parliament. (4) The Hungarian National Bank cannot get involved in the formulation of fiscal policy. Its only job is the formulation and execution of monetary policy. (5) The National Bank cannot attempt to transform public money into private funds because that is intentional theft and fraud.

Péter Róna, another economist and banking expert, in a conversation with György Bolgár on Klubrádió this afternoon added that the only assets Matolcsy could have used to buy works of art, musical instruments, or even to establish foundations were the bank’s private “income” from dues paid by banks and entrance fees to view the bank’s numismatic collection, which when Róna was a member of the board of directors a couple of years ago was no more than 4 billion forints a year. The foundations received 260 billion forints, more than 17 billion went for real estate, and an incredible amount of money was spent on artwork, including a picture by Titian for 4.5 billion forints.

From the general silence, it is apparent that members of the government and Fidesz-KDNP MPs find the whole scandal most unfortunate. When journalists asked questions of László Kövér and Viktor Orbán in the corridors of the parliament building, the politicians just kept going, eyes fixed on the floor. They refused to utter one word. Some of the lesser characters tried to act dumb. The excuse of one of the Fidesz deputy chairmen, Szilárd Németh, was that since he has only a simple cell phone, not like the journalists with their smart phones, he had heard nothing about the whole thing. I suspect that they were told to remain silent in the hope that eventually the whole scandal will just die down. However, I would like to remind Árpád Habony and Antal Rogán, head of the propaganda ministry, that this kind of strategy didn’t work in President Pál Schmitt’s plagiarism case.

Behind the stony silence I suspect fear because journalists of four independent organs were told yesterday that they will not be able to enter the parliament building for an unspecified duration. The four publications are Népszabadság, HVG, Index, and 24.hu. Letters notifying the editors-in-chief of the decision asked the editors to instruct their colleagues to obey the rules governing the presence of journalists in the parliamentary building “in order to maintain your publication’s parliamentary accreditation.”

In addition to the silence, the decision must have made somewhere high up, most likely in Fidesz, to leak a ten-year-old story according to which Péter Medgyessy, prime minister of Hungary (2002-2004), received 597,000 euros from the French company Alstom while he was serving as “traveling ambassador” for the country. After Medgyessy resigned, his successor Ferenc Gyurcsány named him to the post as a kind of consolation price. At the same time, however, Medgyessy returned to his old consulting business. Magyar Idők claims that the money Medgyessy received from Alstom was not compensation for his consulting services but a bribe in connection with Alstom’s bid for the metro cars for the new M4 metro line negotiated in and around 2006. Alstom was found guilty of paying more than $750 million in bribes to government officials around the world in December 2014. To make sure that the story sticks, a few hours later Magyar Idők also published a tabloid-like editorial.

Lajos Kósa, leader of the Fidesz parliamentary caucus, announced that “no prime minister in the 25 years of our democracy was accused of such a crime. Péter Medgyessy must give an account of that sum.” The prime minister’s office immediately joined the chorus, and its spokesman promised an investigation into how “this money is connected to the governance of the left.” They will investigate not only the affairs of the former prime minister but also those of former Budapest mayor Gábor Demszky. As for Medgyessy, he admits that he received almost 600,000 euros from Alstom through a Danish and Austrian company but claims it was all on the up and up.

Of course, at this stage we have no idea what transpired, but I must admit that 600,000 euros for a consulting fee is pretty steep. I heard Csaba Molnár (DK) contemplate the possibility that the reason for Medgyessy’s rather sympathetic attitude toward the Orbán government of late might have something to do with Fidesz’s holding this information over his head. Of course, this is just speculation, but it was rather embarrassing when a few months ago Medgyessy claimed in a radio interview that the Orbán government’s corruption is no different from corruption during the socialist-liberal period. I guess this also included his own two years as prime minister.

I’m sure that the pro-government media, including state TV, will keep this issue alive while an investigation will immediately begin into the bribery charge against Medgyessy and perhaps even against Demszky. Meanwhile, of course, nothing will happen on the Matolcsy front.

April 26, 2016

The Hungarian National Bank’s foundations and their beneficiaries

Last night, after a legal battle, the lists of all the grants the six Hungarian National Bank foundations approved in the last two years were finally released. It will take some time for analysts to sort through these lists to figure out who got how much for what from the foundations. Not only are the lists long, but it can happen that the same person or company received grants from several foundations.

The six foundations of the Hungarian National Bank have complicated names starting with Pallas Athena, the Greek goddess of wisdom, courage, inspiration, and many other virtues. By now only acronyms are used, like PADA, PADOC, and PADS. In any case, György Matolcsy sank 265.65 billion forints or 855.7 million euros of public money into his foundations. He had no intention of ever revealing where all that money would eventually end up. But the Kúria, Hungary’s highest court, decided otherwise. Hence the release of the lists of foundation grants.

These foundations, in addition to serving as sources of grants to the regime’s favorites, also provide job opportunities and extra income for close associates or friends of the management of MNB. The yearly salaries of the six foundation directors amount to 320 million forints. In addition, 30 individuals serve as paid members of their boards. Some people have multiple jobs at different foundations.

It will take some time to determine the greatest beneficiaries of György Matolcsy’s largesse. But so far we can say that they all seem to be politically close to the present government. I would place many of them on the far right of the Hungarian political spectrum.

The building of the Hungarian National Bank

The building of the Hungarian National Bank

One major beneficiary was New Wave Media Kft., whose managing director is István Száraz. It recently acquired two internet news sites: vs.hu and Origo. It also owns two English-language sites: welovebudapest.com and welovebalaton.hu. They seem to be useful sites for potential tourists. One can learn very little about the corporate structure of New Wave from its website, but Hungarian newspapers seem to know that György Matolcsy’s cousin, Tamás Szemerey, is one of the owners.

According to a quick estimate, New Wave received grants from all six foundations, amounting to more than 500 million forints. Over and above this amount 70 million forints was given directly to the ailing vs.hu website. In addition, New Wave received 14 million forints for the translation of three books by George Friedman, a geopolitical forecaster of Hungarian origin who seems to be an admirer of Viktor Orbán.

The foundations poured quite a bit of money into publishing ventures–translations as well as original works. One book found worthy of translating–this time into Polish, Romanian, Czech, and Ukrainian–was Chess and Poker: Chronicle of the Victorious Battles of the Hungarian Economic War of Independence, written by Matolcsy’s secretary, Helga Wiedermann. The book created quite a stir in Hungary when it appeared. Wiedermann recounted that on November 17, 2011, when the Hungarian government officially announced that it had decided to turn to the IMF for a loan, Matolcsy had lunch with three representatives of Goldman Sachs. He told them about the decision four hours before the official announcement. According to Wiedermann, one of three visitors immediately excused himself to go to the rest room, presumably to inform, directly or indirectly, Goldman’s forex trading desk. The EUR/HUF chart from that day shows immediate buying pressure after Matolcsy’s indiscretion. I wrote about this incident shortly after the book appeared in March 2014. So now this book will be available to a larger reading public. The cost of translation, printing, and advertising was 68.5 million forints plus VAT.

Kairosz Publishing House, the favorite of the Hungarian right, received 39 million forints for the publication of a six-volume series on Hungarian history by Dr. Miklós Kásler. And no, his doctorate is not in history. He is the director of the National Institute of Oncology. For a number of years he has appeared on state television with his own version of Hungarian history. The members of the board found the publication of this multi-volume work important because “it can serve as a counterbalance to the strongly globalized historical view arriving from the West.” It is supposed “to form the world view of new generations and to strengthen the patriotic sentiment against the globalist views.” The six volumes cover Hungarian history from the arrival of the Magyars in the Carpathian basin to, I assume, the glorious governance of Viktor Orbán.

A new book–“Unorthodox Eccentrics” (Unortodox különcök)–by István Lovas, the Jewish anti-Semite with a questionable past, was also found worthy of financial assistance. It too was published by Kairosz. The book is supposed to be a comparison of the Hungarian, Icelandic, and Malaysian handling of the recent economic crisis. According to the review I read, it is mostly about Viktor Orbán the brave and “everybody else.”

Among the grant recipients is another “favorite” of mine, Tamás Fricz. He calls himself a political scientist and for a while was actually an associate of the Political Science Institute of the Hungarian Academy of Sciences. A few years ago the new director of the Institute had the courage to throw him out since Fricz is a Fidesz propagandist, pure and simple. More about his anti-German and anti-Israeli propaganda can be found in one of my earlier posts. Fricz’s subsidized book is a collection of 80 articles written between January 2013 and October 2014. The publisher received 1.2 million forints to help defray costs.

Finally, a 1.5 million grant was given to the Szabad Piac Alapítvány for the publication of the Hungarian translation of Tom G. Palmer’s edited volume After the Welfare State: Politicians Stole Your Future, You Can Get It Back. The book is available online. Palmer’s introduction begins: “Young people today are being robbed. Of their rights. Of their freedom. Of their dignity. Of their futures. The culprits? My generation and our predecessors, who either created or failed to stop the world-straddling engine of theft, degradation, manipulation, and social control we call the welfare state.”

So far I have spent very little time perusing the lists, but I think that even these few examples give us an idea of the mission of the Hungarian National Bank’s foundations. Not financial literacy, not economic research, but the promulgation of Orbán’s ideology and the dissemination in Hungarian of the limited, questionable support it finds in the West. And, of course, assistance for the government’s friends and family.

April 23, 2016

The Hungarian Constitutional Court delivers a blow to the central bank

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.

exchange rate

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.

April 3, 2016

The real estate empire of the Hungarian National Bank and its foundations

Back in August 2014 I wrote a post with the title “The Hungarian Central Bank goes on a buying binge.” If I had known what would follow, I would have chosen a more modest description. Spending has continued unabated. Up to that point the Hungarian National Bank had purchased only two pieces of real estate: a former castle-hotel in Tiszaroff for €1.3 million (415 million HUF) and the Eiffel Palace in Budapest for €57.5 million (18 billion HUF). Since then more property was purchased, not directly by the Hungarian National Bank but rather by the foundations the National Bank established. The purchases were made by György Matolcsy not as the chairman of Hungary’s central bank but rather as the CEO of these handsomely-endowed foundations. In my original post on the subject “only” 200 billion forints had been sunk into these foundations. The latest figure I heard was 300 billion.

Matolcsy has expensive taste. He seems to be especially fond of the pricey buildings in the Castle district of Buda. It is here that Matolcsy, or rather his “foundations,” bought three buildings not far from one another, ostensibly for educational purposes.

One of Matolcsy’s foundations, the Pallas Athene Domus Animae Foundation (PADA), purchased the first of the three buildings: the former Buda City Hall (Úri utca 21) that served the city until 1873 when Buda, Pest, and Óbuda joined to create Budapest. The price was 1.85 billion forints. Apparently, Matolcsy is planning to open a tavern, a wine museum, and a restaurant downstairs while a “doctoral school for economists” will be located upstairs. The idea of the National Bank running a tavern is quite a hit in Budapest.

The next building acquired by the same PADA foundation is the Lónyai-Hatvany house (Hunyadi János út 26), which is known to be the most expensive piece of property in Budapest. The foundation paid 11.2 million euros (3.4 billion HUF) for it. It was originally built for Menyhért Lónyai, prime minister between 1871 and 1872. The house was then purchased by Ferenc Hatvany, an art collector and patron of the arts. The place was once filled with paintings by El Greco, Cranach, Courbet, Renoir, Pissarro, Picasso, and the best of Hungarian artists. Many of these paintings were subsequently hidden in various bank safes, but 168 of them were “liberated” by the Soviet troops. They were discovered in 1991 in Nizhny-Novgorod. The building, which is only half-finished, is a replica of the original, which was leveled by a bomb. Apparently, Matolcsy would like to open a restaurant here as well.

The most fascinating story concerns the third building. It was acquired by the Pallas Athene Geopolitikai Alapítvány (PAGEO) and will be transformed into “a research and educational center.” The purchase price was 795 million forints. This building, which stands at the very end of Úri utca (number 72), has a most unusual history. Many old cities, especially those built on hillsides like Buda, had an underground labyrinth through which one could traverse practically the whole inner city. This is especially so in Buda, where there are several fairly large caves. Úri utca 72 is one of those houses beneath which there is an underground labyrinth that connects several larger and smaller caves. In 1936, when the Hungarian government began worrying about the possibility of war reaching Hungary, in great secrecy it purchased the property. It wanted to have a safe place to deposit Hungary’s gold reserves and the Holy Crown. Anyone who’s interested in the details and knows Hungarian should read the story of the “bunker” by Balázs Szabó. Perhaps Matolcsy was inspired by the fact that the underground “bunker” was once in the possession of the Hungarian National Bank.

What we can see: Úri utca 72

What we can see: Úri utca 72

The bunker under the building, according to the photos taken in the 1990s, is in pretty bad shape. But it looks as if the foundation has plans to utilize it in some way. The plans 444 got hold of are too general to know exactly what Matolcsy has in mind, but 444 is almost certain that it will be a three-story structure that will include a wellness center. The reporters detected several jacuzzis, a large swimming pool, and several saunas. That would be the lowest point of the “bunker.” From there a 150-160 m. tunnel, 35 m. underground, would lead to another building on Attila út.

Knowing the paranoia of Fidesz politicians, I wouldn’t be at all surprised if the real purpose of the “bunker” is to provide a safe haven for the treasures of the National Bank as well as a secure retreat for members of the government.

PAGEO denies the very existence of such plans, with or without a wellness center. But somebody drew up plans, and they look like this:

Elevator takes one down to 35 meters

Elevator takes one down 35 meters

The tunnel

Entrances into the bunker complex: Úri utca, Lovas út, Attila út

Entrances into the bunker complex: Úri utca, Lovas út, Attila út

In addition to these valuable properties in the Castle district, I should mention two more buildings in Budapest. One is a four-story building in downtown Budapest (Kálmán Imre utca), which was bought in 2014 for 450 million forints. Of course, the buyer was one of the foundations (Pallas Athene Domus Scientiae Foundation). The other building is a luxury villa on Mátyás Király út in the expensive Svábhegy district in Buda. It is in close proximity to Matolcsy’s official residence. Naturally, it was purchased by a foundation, this time PAGEO. Previously the building was owned by the Budapesti Francia Iskola és Gimnázium.

The Bank is also planning to spend another 411 million forints to add an extra floor to the Eiffel Palace, which was purchased in 2014 for the very inflated price of 18 billion forints. This floor would be the exclusive space of the National Bank. Currently the whole building is rented out to various firms, but this top floor would serve as offices for the highest officials of the bank, including the office of the chairman. There would be conference rooms, a library, a large lecture hall, etc. So, basically, the top echelon of the bank would move to the eighth floor of the Eiffel Palace.

A less glamorous purchase was the building of the County Hospital in Kecskemét. The price of the 2015 purchase was 1.7 billion forints. The building is close to the already existing Technical School of Kecskemét College, established only a few years ago, where Matolcsy is planning to have one of his schools of “unorthodox economics.”

The Hungarian parliament, in near record time, voted to make all transactions of the National Bank and its foundations secret for thirty years. According to all responsible legal scholars, moving public money into private foundations is unconstitutional. Even President János Áder, who rarely has compunctions about bills the Fidesz-majority parliament sends him, was taken aback by the audacity of the whole affair. He had the courage to send the bill to the constitutional court for review. Sometime in April we will find out what the Fidesz loyalists of the court will do. Perhaps they will deem the bill unconstitutional. But even if they rule against the Hungarian parliament, the court is so tainted by now that most critics of the administration will be convinced that the decision wasn’t reached independently but at the order of Viktor Orbán, who came to the conclusion that Matolcsy had gone too far and that his business affairs reflect badly on him and his government.

March 13, 2016