By Minister of National Economy György Matolcsy gave an interview recently to the Wall Street Journal, which can be read below.
The chief architect of the Hungarian government's unorthodox economic-recovery program said Wednesday that the country's central bank can use more creative monetary measures to boost output without endangering financial stability or igniting inflation.
For the National Bank of Hungary, "there's room to maneuver to foster economic growth," Economy Minister Gyorgy Matolcsy said, while emphasizing that the bank needs to "be extremely cautious" in its actions given the country's high level of foreign-currency debt and the jittery state of the markets.
International investors have focused on the independence of Hungary's central bank as Prime Minister Viktor Orban prepares to name a new governor in coming weeks. Mr. Matolcsy, a close ally of Mr. Orban, is widely considered a candidate for the job, though he said it hasn't been offered to him.
Fear that the bank's next leader will take overly aggressive monetary-easing steps to jump-start growth ahead of national elections next year has contributed to recent drops in the value of the Hungarian currency, the forint, analysts said. The government has blamed speculators for the fall.
In an interview, Mr. Matolcsy sought to assuage such concerns, saying "there should be no shock therapy from monetary policy, no surprises." He said the central bank should "absolutely not" finance government deficits by printing money and should be very targeted in providing liquidity to commercial banks.
Still, Mr. Matolcsy said he would like to see "a strategic partnership between the Hungarian government and the new leadership of the Hungarian central bank," adding that after a sharp decline in the state budget deficit in recent years, "what we badly need is a turning point regarding GDP growth."
Hungary this week started a "road show" to meet overseas investors as it lays the groundwork for a possible international bond issue that likely would be denominated in dollars.
There has been a tense policy battle between the National Bank of Hungary and the government since Mr. Orban and Mr. Matolcsy took office in 2010, with political leaders complaining the bank hasn't done enough to boost the economy, and bank officials criticizing government moves as anti-growth and near-sighted.
Bank Gov. Andras Simor also warned government-proposed legal changes threatened the institution's independence. The issue became a critical bone of contention between Budapest and the European Union. The EU, European Central Bank and International Monetary Fund all intervened to defend bank autonomy.
Mr. Matolcsy said that the central bank "will be absolutely independent in the future," and that controlling inflation should remain its primary goal. But he said that the bank and government "must cooperate with each other" if the country is to pull itself out of recession.
Since August, the bank has carried out a series of rate cuts, despite opposition by Mr. Simor and his two deputies. The trio was outvoted by the four rate setters appointed last year by Parliament, which is controlled by Mr. Orban's Fidesz party. Mr. Matolcsy said other steps also could be worthwhile.
"I would like to see a conservative national bank using all the means used by the ECB, using a couple of means used by the Bank of England and some means that might be used by the Fed," Mr. Matolcsy said.
As an example, Mr. Matolcsy said, it could be "viable" for the Hungarian central bank to use focused injections of liquidity to encourage commercial banks to lend money to the country's small and medium-sized enterprises and export-oriented businesses, which have struggled to find affordable credit.
Simply injecting liquidity into the banking system in general, however, "would be a huge mistake," Mr. Matolcsy said. "We have to reach the inflation target, but in the meantime, a well-focused lending program might be of some use."
With any new measures, Mr. Matolcsy said, the bank must move "step by step, very slowly and cautiously," adding that "the central bank must be more conservative than the government."
He said keeping the forint steady is a more important goal than targeting any specific exchange rate. "It's not a matter of the level of the currency, but the stability of the currency. What we need here is a much improved business climate. We need confidence-building, trust-building measures," he said.
Mr. Matolcsy touted the government's success in shrinking the country's budget gap to below 3% of gross domestic product, the level mandated by the European Union. He said the 2012 deficit would end up at about 2.7% of GDP and this year's would be at a similar level.
The EU and IMF have expressed reservations, however, about how Hungary has managed to shore up its public-finances, saying the government has relied too heavily on short-term measures such as the levy on banks and special crisis taxes on other sectors dominated by multinational companies.
Mr. Matolcsy played down that criticism, saying the government has made long-term structural changes. He said the government also supports reducing taxes imposed on commercial banks that step up lending to small and mid-sized businesses as a way of boosting credit in the economy.
Hungary's economy contracted in the first nine months of last year. Fourth-quarter figures are expected to show continued recession. This year analysts expect the economy to be flat or show very slight growth. Mr. Matolcsy said he expects growth to return by the middle of this year.
"We are just on the right track to make a comeback, but we do need to boost GDP growth," Mr. Matolcsy said.
(The Wall Street Journal)
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