Hungary defiant in central bank dispute

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Hungary defiant in central bank dispute

Hungary defiant in central bank dispute
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Hungary has defied objections from the International Monetary Fund and the European Union and the parliament has adopted a new law regulating the country’s central bank.

The IMF and EU opposed the move saying it would give the government too much influence over central bank policy.

Hungary, which is following a much criticised unorthodox economic policy, now looks unlikely to be able to obtain a new funding deal from the IMF.

The could prevent talks with international lenders going ahead in January and which the central bank itself described as a threat to the country’s economic stability.

“These new bills create the possibility for influence over central bank decision making based on government and party interests, which … goes against… the basic treaty of the European Union,” the bank said in a statement.

Prime Minister Viktor Orban refused an EU request to withdraw the bill, saying he would not take orders from Brussels.

Orban, whose centre-right Fidesz party swept to power in April 2010, has used his two-thirds majority in parliament to curb the rights of Hungary’s top court, tighten the government’s grip over the media, and revamp the electoral system.

Earlier this month US Secretary of State Hillary Clinton voiced concerns over democratic freedoms in Hungary in a letter to Orban.

The prime minister told public radio on Friday that Hungary had changed the central bank bill to fit the expectations of the European Central Bank in all but two points, but it would go to court to defend those two points.

The ECB asked the government to reconsider boosting the ranks of the rate-setting Monetary Council and the number of deputy governors, which it said could allow undue government influence over central bank policy. Hungary kept those points in the bill.

Many commercial bank analysts say Hungary needs to come to terms on a deal to restore investors’ confidence and ensure it has access to market funding next year when it has to refinance 4.8 billion euros worth of foreign currency debt, including repayments of a 2008 IMF/EU bail-out.

The new law was passed in the 386-seat parliament with 293 votes, with the support of the ruling Fidesz-KDNP parties and the opposition far-right Jobbik. The opposition Socialists and the green LMP stayed away from the vote.

A spokesman of the European Commission said on Friday that Commission President Jose Manuel Barroso has sent a new letter to the Hungarian prime minister, in a reply to Orban’s letter before Christmas.

“It’s a constructive letter – the Commission wants to avoid the situation escalating. We are still analysing the material the Hungarian government had sent to us and we will be following up,” the spokesman said, without disclosing further details.