BUDAPEST, Hungary (AP) — Hungary's prime minister said Friday that he is nominating Economy Minister Gyorgy Matolcsy as the new head of the National Bank of Hungary.
Prime Minister Viktor Orban announced the decision on state radio the day before the end of the six-year term of current bank president Andras Simor, with whom the government has had a rocky relationship.
The nomination did not surprise markets — Orban has called Matolcsy his "right hand" — but there is much uncertainty and concern among experts about the central bank's independence and what role the central bank will play in the government's efforts to generate economic growth.
Orban said Matolcsy, who has implemented a long series of unusual economic policy steps since Orban's Fidesz party won a two-thirds majority in the 2010 elections, was the right man for the job in part, because he has managed to bring Hungary's budget deficit below the level demanded by the European Union, which Hungary joined in 2004.
Orban said that while the independence of the central bank "must not be questioned," the institution needed to place its duties "within the framework of economic policy." "This is only possible if we nominate a person at the helm of the central bank who has close working experience in government," Orban said. "Performance and facts point only to one person and that is Gyorgy Matolcsy."
Orban predicted that Matolcsy's nomination would create "stability and predictability," two factors critics charge Hungary's economic policy has been sorely lacking. Orban also said Mihaly Varga, currently in charge of Hungary's stalled negotiations with the International Monetary Fund for financial support, would replace Matolcsy at the Economy Ministry.
Under a previous government, Hungary received an IMF-led bailout in late 2008 but two years later Orban cut ties with the Washington-based organization. In late 2011, however, when the forint, the local currency, was rapidly weakening against the euro, Matolcsy announced Hungary would again seek a "safety net" from the IMF and the EU.
A year of negotiations was inconclusive, mainly because the government did not want to surrender its "unorthodox" policies, such as the EU's highest taxes on the banking sector and a VAT tax rate of 27 percent.
A successful dollar-denominated bond issue two weeks ago has allowed Hungary to go without a new IMF loan and so little progress is expected on that front that Orban said Varga would be able to keep his role as Hungary's chief IMF negotiator even after he succeeds Matolcsy at the economy ministry.
In recent weeks, Matolcsy has tried to allay concerns over his new job, indicating he will stick to conventional policies at the central bank and its main objective of keeping inflation down. Still, there is uncertainty over the bank's future actions.
"From a longer term perspective, it is not possible to put a positive spin on the nomination and the coming changes at the NBH," analysts at London's 4Cast said. "Forint risks will likely intensify once again" as the rate-setting Monetary Council gets filled with members close to the government.
Since August, the NBH has cut its key interest rate from 7 percent to 5.25 percent, with the four, government-nominated members of the Monetary Council usually outvoting Simor and the bank's two vice presidents.