Hungary’s central bank goes down the rabbit hole

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In the six years since Fidesz came to power, its policymakers seem to have been reluctant to miss an opportunity to convince the world of their lack of commitment to transparency and good governance.

The latest example of murky dealings concerns the privatization of MKB Bank. Formerly owned by BayernLB, Hungary’s sixth-largest lender was on the verge of bankruptcy when it was taken over by the central bank (MNB) in July 2014.

At the time, the government promised to return the bank to the private sector once it had been restored to health. Permission was subsequently obtained from European authorities for a restructuring, and MKB’s distressed assets were spun off into a special purpose vehicle. The bank was then put up for sale early this year.

So far, so unexceptionable. In March, however, worrying rumours began to surface about the likely buyers of MKB. Reports suggested that the bank was destined to end up in the hands of several controversial foundations belonging to the MNB.

The announcement of a successful conclusion to sale at the end of the month did little to reassure the doubters. The main buyers were named as a newly created Hungarian private equity fund called Metis and Blue Robin Investments, an obscure Luxembourg-based fund said to be backed by Chinese and Indian investors.

Viktor Orban
Viktor Orban
All involved in the deal vehemently deny suggestions of a connection between the funds and the MNB’s foundations. Nevertheless, many in Budapest continued to speculate that the central bank – which has been run since 2013 by Georgy Matolscy, a key ally of prime minister Viktor Orban – was represented on the buy side as well as the sell side of the transaction.


Suspicion

In most European markets, gossip of this sort should be at worst a temporary annoyance or embarrassment for the authorities. In due course, assuming everything to be above board, publication of the accounts of the MNB and its foundations would be enough to dispel suspicion of inappropriate dealings.

In Hungary, however, that is no longer the case. At the start of March, Fidesz politicians rushed through legislation allowing the central bank to withhold information from the public that it deems potentially damaging to monetary or foreign exchange stability.

Meanwhile, the activities of the six foundations, which have attracted criticism over the past two years for lavish purchases of assets including real estate and fine art, were completely exempted from public scrutiny.

Under any circumstances, such a move would be cause for concern. In Hungary, where allegations of cronyism are already rife, it reinforces suspicions that policymakers see civil institutions as vehicles for self-enrichment rather than as the cornerstones of a democratic state.

If the MNB has nothing to hide, there can be no good reason for refusing to allow public access to its accounts and those of its foundations. If it fails to do so, it risks irreparable damage to both its own reputation and that of the companies it controls – which, since November, include the Budapest Stock Exchange.

Hungarian politicians should be warned – withholding information can be as dangerous as releasing it.