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STATE GUARANTEES IN HUNGARY

STATE GUARANTEES IN HUNGARY. Dr. GÁBOR PÓSCH State Audit Office Hungary. Rural Credit Guarantee Schemes Budapest, 12-13 January 2006. INTRODUCTION LEGAL BACKGROUND CLASSIFICATION OF STATE GUARANTEES INSTITUTIONAL FRAMEWORK CHARACTERISTIC DATA

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STATE GUARANTEES IN HUNGARY

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  1. STATE GUARANTEES IN HUNGARY Dr. GÁBOR PÓSCH State Audit Office Hungary Rural Credit Guarantee Schemes Budapest, 12-13 January 2006.

  2. INTRODUCTION • LEGAL BACKGROUND • CLASSIFICATION OF STATE GUARANTEES • INSTITUTIONAL FRAMEWORK • CHARACTERISTIC DATA • GUARANTEES FOR AGRICULTURAL SECTOR AND FOOD INDUSTRY • EXPERIENCES OF THE STATE AUDIT OFFICE

  3. INTRODUCTION STATE GUARANTEE • Financial mean for economic policy of the government • Indirect subsidy from the state budget • Function: to be of assistance for necessary credit for investment or maintain the business The institution of state guarantees were introduced firstly in the state budget of 1991

  4. 1. LEGAL BACKGROUND • Act on State Household • Parliament ensures appropriations (expenditures) in the yearly budget for financing the acceptance of guarantees • authorises the Government to engage specific state guarantees in limited holdings • authorises the Government to guarantee credits provided by international financial institutions • legal base for counter-guarantee

  5. Act on yearly State Budget defines • limit of the specific governmental guarantee • limit of state guarantee on exhibitions of fine arts • appropriations (expenditures) for direct and counter-guarantees • for counter-guarantee companies • - holdings of guarantees • - maximum amount of credit to be guaranteed • - maximum percentage of credit to be guaranteed

  6. Governmental/Ministerial Decrees procedure of direct state guarantees and counter-guarantees • engagement • acceptance of the guarantee • regain • process of accountancy • control of the procedure

  7. 2. CLASSIFICATION OF STATE GUARANTEES DIRECT STATE GUARANTEE • Based on acts • state budget • other acts • student credit • housing credit • housing credit for public servants

  8. 2. Specific governmental guarantee based on governmental resolution Performance: TAX AUTHORITY INDIRECT STATE GUARANTEE Counter-guarantee Performance: guarantee company

  9. 3. INSTITUTIONAL FRAMEWORK • MINISTRY OF FINANCE • Evaluation / Follow up • Counter sign / Control • acceptance for specific governmental guarantees and • guarantees on by-laws • Proposal for appropriations

  10. HUNGARIAN STATE TREASURY • Data process • Money transfer • Accountancy • TAX AUTHORITY • Responsible for • Specific governmental guarantees • Guarantees on by-laws • Agricultural guarantees

  11. GUARANTEE COMPANIES • EXIMBANK CO • EXPORT CREDIT INSURANCE CO • HUNGARIAN DEVELOPMENT BANK CO • CREDIT GUARANTEE CO • RURAL CREDIT GUARANTEE FOUNDATION

  12. 4. CHARACTERISTIC DATA ACCEPTANCE OF GUARANTEES AND REGAINS Bn HUF Expenditures 2000. 2001. 2002. 2003. 2004. Direct state quarantees 0.1 - - 9,5 - Counter-guarantees 5,7 7,3 3,4 2,9 2,7 —————————————— Σ 5,8 7,3 3,4 12,4 2,7

  13. Incomes 2000. 2001. 2002. 2003. 2004. Direct state quarantees 3,0 2,9 2,7 1,9 0,5 Counter-guarantees 2,7 2,1 1,5 1,0 1,9 —————————————— Σ 5,7 5,0 4,2 2,9 2,4 —————————————————————————— Balance -0,1 -2,3 0,8 -9,5 -0,3 ——————————————————————————

  14. Holdings of state guarantees Bn HUF • 475,5 • 817,4 • 805,3 • 1 124,9 • 1 166,1 • 1 211,3 • 1. half

  15. Outstanding Debts to State Bn HUF • 7,9 • 6,8 • 3,4 • 9,9 • 9,5

  16. 5.GUARANTEES FOR AGRICULTURAL SECTOR AND FOOD INDUSTRY • Yearly State Budget defines • Objects of credits • Percentage of guarantee • Holdings of guarantee • Expenditure for acceptance of guarantee

  17. Decree of the Minister of Agriculture regulates • Conditions of guarantee • Rights and obligations of the banks and debtors • Procedure

  18. Tax Authority • Performs the acceptance of guarantee • Controls the relevant documents in situ as well • Makes resolution on application concerning acceptance of guarantee • Transfers the relevant amount to creditors • Obliges the deptor for repayment of the guarantee paid for the banks • Makes the necessary steps to collect the debts

  19. Agricultural Guarantees Holdings of Guarantees Bn HUF • 33,5 • 36,2 • 39,2 • 36,5 • 31,8 • 50,6 • 1. half

  20. Agricultural Guarantees Acceptance of guarantees and regains Mill. HUF • Expenditures Income s Balance • —————————————————————————— • 641,1 120,7 -520,4 • 2 723,4 83,4 -2 640,0 • 641,0 205,3 -435,7 • 179,4 68,1 -111,3 • 404,3 74,8 -329,5 • 548,8 108,4 -440,4 • 1.half

  21. Agricultural Guarantees Outstanding Debts to State Bn HUF • 8,9 • 4,8 • 1,3 • 1,6 • 1,4

  22. 6. EXPERIENCES OF THE STATE AUDIT OFFICE CONSTITUTION DECLARES The State Audit Office has to audit the final accounts of the budget and has to inform the Parliament concerning the execution of the budget and the regulatory of accounts. The appropriations are an integrated part of the budget. The audit of state guarantees is a very extended one: about 50% of transactions are controlled every year.

  23. AUDIT FINDINGS • in the first years after introducing state guarantees • the government exceeded the limit of the specific governmental guarantees • the principle of gross accounting was neglected (separate accounts should keep for expenditures and incomes) • to spare expenditures: the government covenanted guarantees

  24. in the last 5 years • improvement of the practice • failures were corrected • proper and regulatory use of public money

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