Hungarian PM stands by embattled central bank chief

Reuters News
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Posted: Apr 27, 2016 10:20 AM

BUDAPEST (Reuters) - Hungarian Prime Minister Viktor Orban voiced his support for central bank governor, Gyorgy Matolcsy, on Wednesday, saying he unequivocally backed him despite opposition calls for him to quit over possible misuse of public funds.

Matolcsy has come under fire from the leftist Egyutt and several other parties, including the far-right and the green liberals, over the activities of six educational foundations set up in 2014 by the central bank in what was seen as his pet project.

They have received nearly 1 billion euros of central bank funding, investing most of the money in Hungarian government bonds, whose income pays their running costs.

After a court ruling forced the foundations to publish details of hundreds of contracts, Egyutt asked prosecutors to investigate an unnamed individual on suspicion of mishandling public funds in media content deals.

It later called for Matolcsy to resign.

In an emailed response to Reuters on Wednesday, the Hungarian National Bank (HNB) said all of the foundations' contracts had been concluded lawfully and no funds had been squandered.

It said the bodies had boosted the value of their assets by 830 million forints ($3.01 million). It added that the foundations were now separate legal entities that operated independently of the bank.

The affair has become a test of transparency and of the political association between Orban and Matolcsy, an old ally, which has been key to the direction of Hungary's often unconventional economic policies.

Orban was robust in his defense of Matolcsy when asked by local newspaper Nepszabadsag whether his confidence in his ally had been shaken by the allegations.

"Heaven and earth would have to collide for that to happen," Orban, who had previously called Matolcsy his "right hand," told the paper in response.

In its response to Reuters the bank said: "Following its establishment and court registration, the foundation becomes an organization with a separate legal identity, which is independent of its founder and is managed by a board of trustees."

No circumstance had emerged that would justify Matolcsy's resignation, it said.

PM Orban's latest comment was in line with his past praise for Matolcsy's track record.

Last year Orban said a surge by the Swiss franc, the funding unit behind hundreds of thousands of Hungarian mortgages, could have toppled his government if it had not been for a last-minute move to convert them into forints, orchestrated by the central bank.

Matolcsy has also been instrumental in a drive to lower borrowing costs to a record low, push billions of euros of cheap loans into the small business sector and other measures to bolster economic growth.

Meanwhile, public attacks on the bank governor continued. The front page of Hungarian weekly HVG carried a caricature of Matolcsy in a striped prison uniform with him holding a sign saying "the captive of public funds".

($1 = 275.55 forints)

(Reporting by Gergely Szakacs; Editing by Richard Balmforth)