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Financials

Hungary c.bank under fire over its foundations' contracts

* Opposition party seeks probe of foundation contracts

* Foundations are seen as symbol of governor’s power

* Foundations had to publish contracts after court ruling

BUDAPEST, April 25 (Reuters) - A Hungarian opposition party asked state prosecutors on Monday to examine a possible misuse of public funds by foundations set up by the central bank, in a case seen as a test of transparency and the role of the bank’s head, an ally of the prime minister.

The six educational foundations, established in 2014, are a pet project of Governor Gyorgy Matolcsy, whom Prime Minister Viktor Orban has called his “right-hand man”. They have received nearly 1 billion euros of central bank funding, investing most of the money in Hungarian government bonds, whose income pays their running costs.

The foundations have denied any wrongdoing. The Hungarian National Bank (HNB) says the foundations are now separate legal entities that operate independently of the bank.

The opposition leftist Egyutt party’s move follows a ruling by Hungary’s constitutional court late last month to strike down a law that would have restricted financial scrutiny of the foundations, forcing them to publish hundreds of contracts.

The contracts include support for various educational and media projects and for the large-scale construction and renovation of real estate belonging to the foundations.

The Egyutt party said it had asked prosecutors to investigate an unnamed individual on suspicion of mishandling public funds in media content deals, which granted about half a billion forints ($180,832) to a Hungarian media firm called New Wave Production Kft.

“We believe these contracts were overvalued,” Viktor Szigetvari, chairman of Egyutt, told Reuters.

Egyutt has also called on Matolcsy to resign.

PUBLIC FUNDS

In a statement posted online on Saturday the foundations said all of their contracts “were concluded lawfully” and denied any squandering of public funds. New Wave also said the contracts it had been involved with adhered to the law.

In a separate statement in reply to Reuters’ questions, the central bank said: “The rights of the HNB as founder do not include making or influencing ... decisions linked to ... the activities of the foundations.”

Matolcsy, a former finance minister under Orban who became bank governor in 2013, is chairman of the board of trustees at one of the foundations and a member of the board of trustees at another. His close relationship with Orban has been key to the direction of Hungary’s often unconventional economic policies.

Transparency International, a Berlin-based global non-governmental organisation, said it also wanted Hungary’s chief prosecutor to investigate a possible misuse of public funds.

“The Hungarian constitution and other laws say that public funds and the national wealth should be devoted to serving public tasks,” said Miklos Ligeti, Transparency International’s head of legal affairs in Hungary.

“In the case of the central bank’s foundations, money was spent in a way that could in no way be described as serving Hungary’s public good,” he said. ($1 = 276.5 forints) (Reporting by Krisztina Than and Gergely Szakacs; Editing by Gareth Jones)

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