Need for rethinking of the Hungarian fiscal and monetary policy

In October 2008 the main Hungarian public finance actors: the government, the National Bank of Hungary (MNB) and experts cited the high public debt and volume of unsecured foreign-currency loans as the main reasons for the economy’s vulnerability. On the other hand according to the formal president of the MNB the first and foremost it was the inadequate level of foreign exchange reserves that made Hungary among the first to request outside assistance, in the form of international credit just after the Lehman bankruptcy. That critical time the MNB was only partially able to fulfil its role as the ‘lender of last resort’, and the Treasury was not able at all to conduct an anti-cyclical keynesian fiscal policy due to the previous fiscal years when the government lost its international creditworthiness. Hungarian Treasury (NGM) in November 2011 – three years later than the previous package – requested again outside assistance, in the form of international credit or insurance from the Monetary Fund and European authorities. A rethinking of fiscal and monetary policy, and the comprehensive restructuring of the Hungarian economic-policy mix, are essential in the interests of avoiding the following stops and goes periods and of halting the social and economic disintegration of the country. Instead of good governance Hungary needs co-governance between the fiscal and monetary policy. The Fiscal Council might be a very useful institution to help and moderate this process with its new president. A Lucasian regime change is expected in the Hungarian economy.