* Vice governor Kiraly says changes could damage economy
* Resignation may raise fresh doubts on bank's independence
* Kiraly says Monetary Council cannot fulfil role
* Says bank communications policy 'could hurt credibility'
By Krisztina Than
BUDAPEST, April 8 A deputy governor in Hungary's
central bank resigned on Monday in protest at what she said was
a campaign by appointees of Prime Minister Viktor Orban to
reduce the bank to a rubber-stamp for risky economic policies.
Deputy governor Julia Kiraly launched a scathing attack on
the new bank governor put in place by Orban, saying that by
firing seasoned staff and changing the bank's procedures, he was
risking long-term damage to the Hungarian economy, which is
already the most indebted in central Europe.
Kiraly was the last remaining member of the eight-strong
Monetary Council who was not appointed by Orban's government or
his Fidesz party. Her six-year term would have expired in July.
The resignation of such a senior official could give new
fuel to accusations from his opponents that Orban, who has
clashed repeatedly with the European Union and international
lenders over his idiosyncratic policies, is eroding the
independence of institutions which could challenge him.
The central bank did not respond to a request for comment
and there was no immediate comment from the government.
Markets were untroubled by the resignation: foreign
investors say even if they don't like Orban's policies, they are
sticking with Hungarian bonds and the forint currency because
the yields are higher than almost anywhere else in Europe.
Kiraly resigned four days after she abstained from a vote on
economic stimulus measures proposed by the bank's new
management. She said she was given the document 35 minutes
before it was put to a debate and vote, not enough time to give
it proper consideration.
"Decisions have been made that could cause serious damage
not only to the National Bank of Hungary but in the longer term
also to the Hungarian economy," Kiraly wrote in the resignation
letter which she submitted to the Hungarian president.
"Taking all of this into account, I can see an increasing
likelihood that decisions could be made that are not
well-founded, and (which are) mistaken, for which I do not wish
to take any responsibility."
Orban, a 49-year-old conservative who made his name as a
young dissident when Hungary was behind the Iron Curtain, has
overseen four revisions of the constitution, imposed swingeing
"crisis taxes" on some foreign firms and forced banks to write
off some of the debt owned by Hungarian households.
His opponents accuse him of harming Hungarian democracy and
gambling with economic stability. The EU says he has eroded the
independence of the courts, the media, the central bank and
other institutions, pulling Hungary out of Europe's mainstream.
He says he has saved Hungary from a Greek-style economic
collapse, his reforms are democratic because he won a huge
majority in a 2010 election, and he is under attack because he
threatens the interests of foreign business lobbies.
STABLE MONETARY POLICY
Until recently, investors had looked to the central bank as
a strong institution capable of off-setting government policies.
However, its image for independence has declined since Gyorgy
Matolcsy, an Orban ally, was sworn in as governor last month.
Kiraly's departure will not change the balance of power
inside the central bank's Monetary Council, since appointees of
Orban and his Fidesz party dominate the rate-setting panel.
"She (Kiraly) was the last of the Mohicans," said Erste Bank
analyst Zoltan Arokszallasi. "The fact that she criticises what
happens in the bank is no surprise."
It means there will be one fewer voice in the council who
could speak out against interest rate cuts, which the government
backs to pull Hungary out of recession in time for an election
next year but which carries risks of driving down the currency.
"Her (Kiraly's) resignation highlights the worries regarding
the independence of the central bank and the stability of
monetary policy," said Annika Lindblad, analyst with Nordea.
The forint, which in the past week's has been a barometer of
market anxiety over government policy, was unaffected by
It has been growing stronger over the past few days because
of two factors: relief that last week's stimulus package was
less drastic than many in the market had anticipated, and a new
monetary easing push by Japan which will generate new cash and
push up demand for Hungarian assets.
Kiraly was upset at sweeping changes implemented by Matolcsy
at the central bank headquarters, built in the last days of the
Austro-Hungarian empire near the banks of the Danube.
According to official bank announcements and accounts from
insiders, he fired some of the most seasoned economists, and
turned a hall previously used for staff to debate policy into an
office for one of his lieutenants. The bank has said the
dismissals were aimed at trimming costs.
In her resignation letter, Kiraly said she was stepping down
from all her central bank posts "to signal the seriousness of
the situation" since Matolcsy became governor last month.
She said Matolcsy was imposing a style of top-down control
that, if unchecked, could lead to management by fear.
"Analyses written and rewritten under orders, and amid a
sentiment of a lack of confidence and fear, could lead to bad,
not properly thought-over decisions," she told journalists.
"Fear kills the personality, creativity, free thought ... and
professional honesty sooner or later."