Defiant Hungary passes disputed central bank law

AFP - Hungary defied international concern and adopted Friday central bank reforms and other controversial measures that threaten to leave the country isolated just as its economy needs a bailout.

"Nobody can interfere with Hungarian legislative work, there is no one in the world who might tell the elected deputies of the Hungarian people which act to pass and which not to," Prime Minister Viktor Orban said on Hungarian public radio ahead of the parliamentary session.

Critics say the measure -- which prompted the European Union and International Monetary Fund to walk out of talks this month on a possible bailout for Hungary worth 15-20 billion euros ($20-25 billion) -- will increase government influence over monetary policy.

European Commission head Jose Manuel Barroso had called on Hungary to hold off from adopting the legislation until it is brought into line with EU law.

The fiery debate over Hungary's new constitution By Catherine VIETTE / Luke SHRAGO

But lawmakers went ahead and approved, by a vote of 293-4, the bill which adds more political appointees to the monetary-policy setting committee and could see the central bank disappear as a separate institution altogether.

Parliament also adopted a law which holds the opposition Socialists accountable for crimes committed by the former ruling communist party.

The text, branding the former communist party and its successors "criminal organisations", will be enshrined in the new constitution which comes into force on Sunday.

Parliament, where Orban's centre-right Fidesz holds such an overwhelming majority that it has the power to amend the constitution, also adopted new rules that will allow it to approve laws in as little as a day and without substantive debate.

Hungary's reforms of the media, judiciary and electoral laws, as well as the appointment of Fidesz loyalists to key posts and the adoption of a new constitution have triggered criticism both at home and abroad.

US State Secretary Hillary Clinton has repeatedly expressed her concern over the state of democracy in Hungary.

Guy Verhofstadt, a former Belgian premier and currently the head of the Liberals in the European Parliament, called the new constitution a "Trojan horse for a more authoritarian political system in Hungary based on the perpetuation of one-party rule".

Hungary can ill-afford to anger its international partners, which already bailed it out in 2008 to the tune of 20 billion euros.

In a major policy U-turn, Orban turned to the IMF and EU for help in mid-November after Hungary had difficulties borrowing on the bond markets and its currency fell drastically against the euro.

However, the lenders walked out on preliminary talks on December 16 over the central bank reforms.

The central bank has criticised the law as increasing government influence over monetary policy and said the it "endangers the stability of the Hungarian economy, therefore seriously damages the interests of our country."

It also said the measures violated European treaties and international agreements.

Orban said on Friday that talks with the IMF were set to kick off at the beginning of January, although the EU and the IMF have yet to confirm the resumption of negotiations.

He described the negotiations as "important but not essential".

But the economic pressure on Hungary has not let up. Investors demanded returns of over nine percent to lend to the government this week, forcing the government to abandon part of a bond sale, and the forint has fallen 20 percent against the euro over the past three months.

Moody's and Standard & Poor's have downgraded Hungary's bonds to junk status.

Orban's government has embarked on a number of measures with have embittered investors and rankled its international partners, including windfall taxes on the banking, energy, telecommunication and retail sectors where foreign companies dominate.

It also forced mostly foreign banks -- which had lent to Hungarians in foreign currencies that substantially appreciated, leaving borrowers with huge repayment bills -- to accept repayment at reduced rates.