Hungary Parliament passes amendments to central bank act

The amendments adopted are the ones the government submitted to Parliament on June 21, based on several weeks of five-party consultations with experts of the European Commission, the IMF, the European Central Bank, the National Bank of Hungary (MNB).

The original bill of amendments submitted to Parliament in April was withdrawn earlier in June.

The new amendments relate to the tasks and scope of authority of the National Bank of Hungary's Monetary Council and to authority over publishing information related to international reserves. They also repeat and, in the case of provisions on the dismissal of Monetary Council members, clarify points in the original amendments that were withdrawn.

IMF managing director Christine Lagarde said on June 27 that the Hungarian government's new amendments, together with the commitments on not appointing a third deputy central bank governor or a new Monetary Council member, fully satisfy the Fund's expectations, and once adopted by parliament, official negotiations on a financial assistance programme can start.

On June 29 the European Central Bank (ECB) also said the new amendments, together with the commitments, address the most important remaining concerns regarding the MNB's independence.

Final vote on the original amendments was postponed early in June, at the request of Mihaly Varga, the government's recently appointed chief negotiator for financial assistance from the IMF and European Union, because of reservations expressed by the European Central Bank and the IMF.

The independence of Hungary's central bank has been a sticking point in preparations for negotiations on precautionary financial assistance Hungary is seeking from the IMF and the European Union.

The European Commission started an infringement procedure on the issue against Hungary in January after the country's new central bank act was passed at the end of 2011. It dropped the procedure, however, late April, considering the planned original amendments satisfactory, which, if adopted, were sufficient to start financial assistance talks, pending the opinion of the ECB.

Under the amendments adopted on Friday, the Monetary Council will no longer be charged with executing its own decisions, will not decide on the scope of authority of deputy governors or determine the way its tasks are communicated. The amendments also clarify that the Monetary Council's right is for strategic (rather than management) decisions.

The changes eliminate provisions under which the MNB would send the agenda of the Monetary Council to the government and a government representative would attend the body's meetings.

The number of the Monetary Council members may vary between 5-9, as before, but, in a change, the number of internal members -- the governor and his deputies -- may not exceed the number of external members, while the number of external members must be less than double the number of internal ones.

At present, there are three internal members and four external members.

The amendments drop all references to the possible dismissal of Monetary Council members other than those in the constitution. They also clarify that a dismissed member of the body may appeal to the European Court as well as to a Hungarian labor court.

The amendment makes data regarding the size, composition of international reserves, specific transactions as well as decisions and internal regulations related to their management confidential until they are published by the NBH or for no more than ten years. Decisions on the publication of these data prior to the deadline lies with the central bank governor.

In a further change, the central bank act now contain a clause stipulating the elimination of the Monetary Council in the event Hungary adopts the euro.