1.
On the magic of public funds “losing their public funds-character”.

I.e. Looking Behind the Façade in Hungary, Part II. –
the Hungarian Central Bank’s shady foundations.

@adam_tooze @DanielaGabor @izakaminska @MwiWind @thomasomelia @radosveta_vass @StefanVerena

2.
So this one is about the rather extraordinary story of the Hungarian Central Bank (“CB”) and its foundations that came to handle more money than e.g. what Hungary spends on its entire higher education system per annum.

Bear with me, it’s a nice one.

3.
Just why the Hungarian CB made huge profits from 2013 onwards is an interesting story itself. In short, it came from the sale of its foreign currency reserves, which had to do with EUR and CHF-denominated loans to Hungarian households.

4.
These CHF- and EUR-loans had become dominant and became a huge problem in the financial crisis of 2008-2009 when the HUF was brutally depreciating against both currencies, causing instalments to explode.

I wrote about the legal aftermath here: https://twitter.com/PeterFr89977258/status/1243322965690851334

5.
After a lot of back and forth, Orban decided, and Parliament carved into law in 2014, the automatic, compulsory change of all such loans into HUF-loans. The required EUR and CHF to do that were mainly taken from the CB’s reserves.

6.
And given that thereby the CB sold the EUR and HUF to a much higher conversion rate to the populace than to what it had sourced it, it made huge profits.

Basically, Parliament enforced CB profits by law.

7.
Now, in most countries the profits of CBs are required to be disbursed to the central state budget.

The Hungarian CB, led by Orban-confidant Matolcsy, instead infused it into a web of foundations: in total ca. HUF 260bn (~EUR 860m).

8.
Naturally, the move attracted quite some attention, however Parliament modified the CB law in order to ensure that no information could be sought by the public on the foundations’ operations and expenditures.

9.
The CB agreed, insisting that it is not part of the central budget, not subject to its transparency and public procurement rules, and anyway, by being put into foundations, those moneys “lost their public funds-character”.

10.
This became something of an instant classic with the population, with the term “lost their public funds-character” serving as a *wink-wink* synonym for theft at daylight.

11.
Unexpectedly however, the Constitutional Court in 2016 crushed the law and ordered that information be provided on what the foundation did with such money.

12.
The foundations grudgingly obeyed, and thus cam to light a beautiful collection of absurdities, showing what fidesz does with people’s money, if they think no one will ever attain knowledge of it.

13.
So here comes a small appetizer, what such “non-public” money was spent on either directly by the CB, or its foundations:

14.
- Hungarian sovereign bonds (thus arguably amounting to monetary financing)
- Purchase of real estate (palaces, hotels, villas… a selection of pics to click though: https://index.hu/galeria/index/gazdasag/2016/04/23/ezeket_az_ingatlanokat_vasaroltak_meg_az_mnb-alapitvanyai/9)
- Going into large scale property development ( https://444.hu/2017/12/05/luxuslakasokat-epitenek-a-matolcsy-alapitvanyok)

15.
- Purchase of painings - including a Tiziano for HUF 4,5bn / EUR 15m
- One firm alone of Lörinc Meszaros (Orban’s childhood friend, widely regarded as straw man) got HUF 3,7bn / EUR 22m

16.
- Aligned media, e.g. one publisher of gov-friendly sites, owned by CB Chief Matolcsy’s cousin, got ~HUF 500m/EUR 1.7m
- Financing the edition of a book about CB Chief Matolcsy’s achievements from his time as Minister of Economy, also its translation into various languages

17.
- Subsidizing the publication of several allied media pundits’ and political players’ books / projects, including HUF 39m / EUR 100k for books of professor Istvan Kasler, who was incidentally also a member of one of the foundations’ Curatorium (today he's Minister of Health)

18.
- HUF 70m / EUR 220k for the book of the assistant of CB Chief Matolcsy (in which she btw blithely revealed that Matolcsy informed in a private dinner Goldman Sachs representatives of the government's change of mind re: intention to turn to the IMF - later denied by the CB)

19.
- Mandates for the law firm co-founded by then-Minister of Justice Laszlo Trocsanyi (he was poised to be a Commissioner after the 2019 EP elections and was declined by the EP due to conflict of interest)

20.
- Another lawyer who was also a Curatorium member of one of the foundations, received mandates from several of them, and represented the foundations in the legal battle against transparency

21.
- Mandates to an advertising agency owned by a person whose father had been a spokesman of Orban, and the mother a deputy state secretary under him
- Study trips to Ruanda
- A very special piano

22.
- Up to USD 56k for presentations of "international experts"
- Funding for scores of exotic studies, including one called “The Roman Empire’s Reunification in the Context of Justinian’s Propaganda”

23.
In sum it’s fair to say that fidesz found a way to channel public money without the restrictions and – so they thought – transparency requirements that come with the state budget; and used this rather bluntly to distribute much of it within the fidesz sphere of influence.

24.
In case you wonder if there was any police or state prosecutor action in consequence to these revelations – there wasn’t.

In entirely unrelated news, the wife of state prosecutor Peter Polt was an executive in three of the foundations.