“We don’t have rule of law any more in this country. The rule is totally, completely, one-hundred percent subordinated to the political will and political whim of the government of the day. It is no longer a democracy.” – Lajos Bokros, chairman, Movement for a Modern Hungary
Former finance minister and president of the Budapest Stock Exchange Lajos Bokros says the recent decision by the National Bank of Hungary (MNB) to acquire a controlling interest in the exchange is “superfluous” and has “major negative consequences”.
Instead of being just a monitoring authority regulating the money supply, Bokros says the MNB is now a “hodgepodge of different institutions which try to combine functions very alien to the original mandate of the central bank”.
“The central bank of Hungary today is a real estate agent, it is dealing with precious metals and paintings and drugs and everything, so it’s almost like a very important trading company. Now it is an owner of the stock exchange. And finally it is a very important supporter of some universities where the president of the central bank thinks his views should be propagated and promoted.”
“A conflict of interest”
Bokros says it is an “outright conflict of interest” for the central bank to own and run an institution it is required by law to regulate. The former finance minister knows of no other examples where a central bank owns an institution where government securities are traded. Bokros says that in addition to being regulated by government agencies, stock exchanges are required to regulate themselves, and that for this reason it is an “outright conflict of interest for the central bank of Hungary to be the majority owner of the stock exchange.”
“Government securities are the most important instrument for conducting monetary policy. The central bank cannot be on both sides of the table, managing and regulating an institution which is trading with government securities, and being one important player of the market which is using these securities for monetary policy purposes” says Bokros, who was president of the Budapest Stock Exchange (BÉT) between 1990 and 1995.
“An unnecessary payout”
Bokros says increasing its ownership interest in BÉT from 6% to over 75% involved a “huge, unnecessary payout” on MNB’s behalf. “Why should the central bank pay such a huge amount of money to buy a well functioning stock exchange just because it is owned by the Vienna stock exchange?”
He says what is important is that ownership be clearly separated from the listed companies.
“No rule of law”
Bokros says the government always uses legislation “as a tool of enhancing its interest” and that the law regulating the activities of the central bank does not exclude activities alien to monetary policy function.
“We don’t have rule of law any more in this country. The rule is totally, completely, one-hundred percent subordinated to the political will and political whim of the government of the day. It is no longer a democracy.”
Bokros fears that under central bank ownership and control, the BÉT will become “a very highly manipulated stock exchange” and “it is not for nothing that the government, through the central bank, got an important stake in the management and governance of the stock exchange.”
“A non-level playing field”
Bokros says the BÉT can now be compared to the Shanghai and other government-owned exchanges which are “not a level playing field any more”. He warns that such exchanges “are used by the governments to manipulate the prices of stocks” and he does not advise anyone to invest in “such institutions which cannot maintain a level playing field for all the players.”
On the question of whether it is safe to invest in companies listed on the BÉT, Bokros says it depends on the extent to which they depend on “the manipulation of the Hungarian market”. He says that when they first established the Budapest Stock Exchange “they realized that the Hungarian market was too small for the very large companies”, and it was important for “the so-called flagship companies” to get parallel listings on other major stock exchanges.
“The bulk of the good companies which are listed in the first tier of the market, so to speak, have parallel listings, and, as a consequence, you can see how those values are reflected in the international markets irrespective of what is happening in this country.”