The building of the NBH in Budapest – Photo: wikimedia

Matolcsy calls for institutional change

Hungary is a laggard in competitiveness, and the country will continue to bear the high costs unless it improves on this score, Gyorgy Matolcsy, the governor of Hungary's central bank (NBH), wrote in an article published on Monday.

Matolcsy argued that government economic policymaking needed to undergo root and branch change at the institutional level, geared towards boosting competitiveness.

In the op-ed piece published in the online edition of Magyar Nemzet, he said it was not a question of if the next financial crisis happened but when, and in what form it would emerge.

“We must find the key that properly closes the gates to crises,” he said, adding that it appeared at first blush that central banks held that key since they had been able to swell their balance sheets in order to combat various recent financial crises.

But this solution comes at a cost, he said, noting that financial bubbles have emerged around the world: as central bank balance sheets have ballooned together with public debt and budget deficit levels, economies have recovered while at the same time fuelling inflation.

Matolcsy insisted that the Baltic states, Poland and Romania had handled the crisis better than others, “including us Hungarians”. This, he argued, came down to the efficacy of government decision-making in times of crisis as well as the extant competitiveness level of a given country.

The governor said there was a strong link between crisis management and digital preparedness, and in terms of its financial system Hungary had done well in this regard thanks to a turnaround launched after 2013 which had led to fast improvements.

Matolcsy said that in the course of crisis management, Hungary’s competitiveness may have improved since the crisis resolved an internal economic policy stalemate, and annual budgetary interests were no longer driving proposals on improving competitiveness, he said. But this has resulted in a high budget deficit and public debt, he added. Ensuring a jump in competitiveness, he said, required economic policymaking rather than budgetary thinking.

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