Eurostat says Eximbank is certainly part of the state

May 18, 2016

eximbankEurostat, the EU’s statistical office, has been engaged in debate with the Hungarian government over the Eximbank concerning the bank’s statistical classification, reports Hungarian news site

What is this debate about?

In short, Eurostat says Eximbank – an entity fully controlled by the Hungarian government – must have its balance sheets added to the state’s when making statistical calculations regarding state finances. Hungary’s own Central Statistical Office (KSH) and the National Bank of Hungary both disagree.

Why is this important?

If Eurostat is right, then Eximbank’s asset and liabilities would also be calculated into the state’s own finances (which is not happening now). This would mean that Hungary’s state debt level could jump by as much as 2 percent.

Why does Eurostat think the bank is not independent of the government?

According to Eurostat, which cites Hungarian law, “Eximbank’s core function is the public policy objective of promotion and funding of Hungarian exports.” The bank is 100 percent owned by the Hungarian government and its liabilities are fully guaranteed by the government.

Eximbank also qualifies as what is known in EU legal jargon as a “captive financial institution and money lender.” This means that the state must consolidate the Eximbank’s books into its own.

A few reasons why Eurostat thinks Eximbank meets the criteria for “captive of government”

1) It carries out a limited range of activities in narrow conditions set by the government.

2) Government influences or constrains the liabilities side.

3) Government influences the asset side.

4) Eximbank would not behave like a “normal” commercial entity (e.g. no expectation of a market
rate of return on equity).

“It is evident, that the government is not expecting a high market rate of return from the bank, but
rather that the entity fulfils best its main aim: the pro-export policy of government, which is in
accordance with the economic policy of the government. This is confirmed by the fact that, without
the subsidy provided by government, Eximbank would be loss making in each year,” Eurostat writes.

“Consequently, Eurostat considers that Eximbank has the characteristics of a captive financial institution controlled by government and, therefore, should be classified in the general government sector.”

Eximbank and Fidesz

Eximbank has proven to be a favorite place for oligarchs and Fideszniks. The import-export bank has financed everything from Andy Vajna’s purchase of TV2 (and subsequent operating costs) to István Garancsi’s purchase of a 140 acre development property on the Danube known as Kopaszi gát. What either of these purchases has to do with import-export is anyone’s guess.