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Hungary approves disputed central bank law

Hungary approves disputed central bank law

Hungary's Parliament on Friday approved a disputed central bank law, as well as other legislation which may hinder upcoming talks with the International Monetary Fund and the European Union about financial support.
Earlier this month, the IMF and the EU withdrew from preliminary talks because of the insistence of the government of Prime Minister Viktor Orban to advance legislation which increases political influence over the central bank and curtails its independence.
While Parliament approved several modifications to the law to comply with requests from the European Central Bank, some of the most controversial rules were approved unchanged.
For example, the new law gives the prime minister the power to name the central bank's vice presidents _ earlier, the bank president nominated his two deputies _ while also creating the post of a third vice president. The Monetary Council, which sets interest rates, will be expanded from seven members to nine and their nomination will also depend on parliament.
The new law was approved 293-4, with support coming from the two government parties _ Orban's Fidesz and the Christian Democrats _ and Jobbik, a far-right opposition party.
"This law strengthens the independence of the central bank," Fidesz lawmaker Antal Rogan said Friday before the final vote, insisting that provisions in the law "guarantee the independent functioning of the Monetary Council and the central bank."
Another law also approved Friday opened the way for the merger of the National Bank of Hungary and the country's financial regulator, a de facto demotion of the central bank president.
Rogan said the government would not push through the merger during the current term of National Bank of Hungary President Andras Simor, which ends in early 2013.
A statement from the National Bank of Hungary released ahead of the vote, however, said that the changes "endanger the stability of the Hungarian economy and therefore gravely damage our national interests."
"The new laws ... open the way for the influence of government and political party interests on central bank decisions," the bank said. "This ... is counter to the basic treaty of the European Union."
The European Central Bank has already voiced its concerns about the independence of the central bank of Hungary.
Meanwhile, Orban downplayed concerns about the potential failure to secure financial aid.
"The IMF negotiations are important but not crucial," Orban said Friday on state radio. "If the IMF gives us a safety net, we will face the next period with greater self-confidence and greater security, but if such an agreement is not reached, we will be able to stand on our own feet."
Despite Orban's apparent certainty, concerns over Hungary's ability to tap bond markets have ratcheted higher after a set of auctions on Thursday that have been described by some analysts as "disastrous."
The yields on five- and 10-year bonds rose nearly a full percentage point to as high as 9.7 percent as investors sought higher risk premiums. The state debt management agency rejected all bids for three-year bonds.


Updated : 2021-04-20 00:55 GMT+08:00