Dr' GBOR PSCH

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STATE GUARANTEES IN HUNGARY

• Dr. GÁBOR PÓSCH
• State Audit Office Hungary

Rural Credit Guarantee Schemes Budapest, 12-13
January 2006.
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• INTRODUCTION
• LEGAL BACKGROUND
• CLASSIFICATION OF STATE GUARANTEES
• INSTITUTIONAL FRAMEWORK
• CHARACTERISTIC DATA
• GUARANTEES FOR AGRICULTURAL SECTOR AND FOOD
  INDUSTRY
• EXPERIENCES OF THE STATE AUDIT OFFICE

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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
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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

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• 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

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

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2. CLASSIFICATION OF STATE GUARANTEES
DIRECT STATE GUARANTEE

• Based on acts
• state budget
• other acts
• student credit
• housing credit
• housing credit for public servants

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

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• HUNGARIAN STATE TREASURY
• Data process
• Money transfer
• Accountancy

• TAX AUTHORITY
• Responsible for
• Specific governmental guarantees
• Guarantees on by-laws
• Agricultural guarantees

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

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4. CHARACTERISTIC DATA
ACCEPTANCE OF GUARANTEES AND REGAINS
Bn HUF
Expenditures 2000. 2001. 2002. 2003. 2004. Direc
t state quarantees 0.1 - - 9,5
- Counter-guarantees 5,7 7,3 3,4 2,9
2,7 S 5,8 7,3 3,4
12,4 2,7
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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 S 5,7 5,0 4,2
2,9 2,4 Balance
-0,1 -2,3 0,8 -9,5 -0,3

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Holdings of state guarantees
Bn HUF

• 475,5
• 817,4
• 805,3
• 1 124,9
• 1 166,1
• 1 211,3
• 1. half

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Outstanding Debts to State
Bn HUF

• 7,9
• 6,8
• 3,4
• 9,9
• 9,5

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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

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

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• 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

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Agricultural Guarantees Holdings of Guarantees
Bn HUF

• 33,5
• 36,2
• 39,2
• 36,5
• 31,8
• 50,6
• 1. half

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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

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Agricultural Guarantees Outstanding Debts to State
Bn HUF

• 8,9
• 4,8
• 1,3
• 1,6
• 1,4

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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.
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• 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

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