Insight: Orban to use Hungary central bank in battle for growth

Thu Jan 10, 2013 11:00am EST
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By Krisztina Than and Sandor Peto

BUDAPEST (Reuters) - Hungarian Prime Minister Viktor Orban has an ace up his sleeve as he tries to revive a recession-bound economy and secure his political future: soon he can take full control of a central bank which has long resisted his will.

By March Orban will pick a new National Bank governor who is likely to flood the economy with cheap credit using unconventional tools - the kind of measures that are controversial enough in giants such as the United States, let alone in a small emerging economy like Hungary's.

With Hungarians still feeling the effects of crisis and commercial banks reluctant to lend, central Europe's most indebted economy badly needs a boost and Orban has little time to lose. He faces parliamentary elections in 2014 and support for his right-wing Fidesz party is crumbling.

Orban is used to getting his way. Since coming to power in 2010, he has filled top public posts with Fidesz loyalists but the central bank has proved a tougher nut to crack.

Last year he tried to curb the bank's independence with new legislation, but had to backtrack on parts of the law under pressure from the European Union and European Central Bank.

Now Orban, whose unorthodox and sometimes unpredictable measures to lower the budget deficit have already drawn fire, has another chance to get his way at the central bank: Governor Andras Simor completes his six-year term on March 2.

Orban has yet to name a successor. However, several sources in central banking and politics told Reuters that the new governor is expected to be close to Fidesz and someone willing to pursue the kind of policies Simor has largely resisted: risky unconventional ideas on stimulating the economy which have been hammered out in government workshops.

Investors, worried that such action could upset Hungary's often volatile forint currency, want to know who will take the helm.   Continued...

National Bank of Hungary Governor Andras Simor holds a news conference in Budapest on November 11, 2010 file photo. REUTERS/Laszlo Balogh/Files