Friday, December 30, 2011

One of Hungary's controversial new laws is to be passed today

Reuters reports that the Hungarian Parliament, where FIDESZ has a two-thirds majority is set to pass one of the controversial laws that have been exciting commentators and politicians: the one that appears to impose political control on the central bank.

Undoubtedly, some of this blog's readers will approve of it either because they approve of politicians controlling monetary policy for their own purposes (the EU springs to mind) or because they like the idea of gallant little Hungary defying the big bad wolves of the IMF and the EU. There is a great deal to be said for the latter if it was accompanied by a more or less sane economic policy and if money were not badly needed from those sources.
It is uncertain whether negotiations with the lenders will start at all in January, after the IMF said on Wednesday the government should work with it on policy issues such as the central bank law if it wants talks to progress.
Hungary needs a new financing deal to back up investors' confidence and help retain its 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 bailout.
Parliament, where the ruling Fidesz party has a two-thirds majority, is expected to pass the central bank bill smoothly. That could add to pressure on the forint, which fell to a one-month low on Thursday, hit by a scrapped bond auction.
Fidesz has amended the law to address most complaints from the European Central Bank, but has not backed down on a planned boost in the number of rate-setters and vice governors that critics say the government could use to influence monetary policy.
Other proposed laws are listed by The Contrarian Hungarian [scroll down].

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