Dr. GÁBOR PÓSCHDr. GÁBOR PÓSCH

State Audit Office Hungary

Rural Credit Guarantee Schemes

Budapest, 12-13 January 2006.

STATE GUARANTEES IN HUNGARY

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INTRODUCTIONINTRODUCTION

• LEGAL BACKGROUNDLEGAL BACKGROUND

• CLASSIFICATION OF STATE GUARANTEESCLASSIFICATION OF STATE GUARANTEES

• INSTITUTIONAL FRAMEWORKINSTITUTIONAL FRAMEWORK

• CHARACTERISTIC DATACHARACTERISTIC DATA

• GUARANTEES FOR AGRICULTURAL SECTOR AND GUARANTEES FOR AGRICULTURAL SECTOR AND FOOD INDUSTRYFOOD INDUSTRY

• EXPERIENCES OF THE STATE AUDIT OFFICEEXPERIENCES OF THE STATE AUDIT OFFICE

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INTRODUCTIONSTATE GUARANTEESTATE GUARANTEE

• Financial mean for economic policy of the Financial mean for economic policy of the governmentgovernment

• Indirect subsidy from the state budgetIndirect subsidy from the state budget

• Function: to be of assistance for necessary credit for Function: to be of assistance for necessary credit for investment or maintain the businessinvestment or maintain the business

The institution of state guarantees were introduced firstly The institution of state guarantees were introduced firstly in the state budget of 1991in the state budget of 1991

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1. LEGAL BACKGROUND

Act on State HouseholdAct on State Household

Parliament ensures appropriations (expenditures) in the Parliament ensures appropriations (expenditures) in the yearly budget for financing the acceptance of guaranteesyearly budget for financing the acceptance of guarantees

authorises the Government to engage specific state authorises the Government to engage specific state guarantees in limited holdingsguarantees in limited holdings

authorises the Government to guarantee credits provided authorises the Government to guarantee credits provided by international financial institutionsby international financial institutions

legal base for counter-guaranteelegal base for counter-guarantee

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Act on yearly State Budget definesAct on yearly State Budget defines

limit of the specific governmental guaranteelimit of the specific governmental guarantee

limit of state guarantee on exhibitions of fine artslimit of state guarantee on exhibitions of fine arts

appropriations (expenditures) for direct and counter-appropriations (expenditures) for direct and counter-guaranteesguarantees

for counter-guarantee companies for counter-guarantee companies

- holdings of guarantees- holdings of guarantees

- maximum amount of credit to be - maximum amount of credit to be guaranteedguaranteed

- maximum percentage of credit to be - maximum percentage of credit to be guaranteedguaranteed

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Governmental/Ministerial DecreesGovernmental/Ministerial Decrees

procedure of direct state guarantees and counter-procedure of direct state guarantees and counter-guaranteesguarantees

engagementengagement

acceptance of the guaranteeacceptance of the guarantee

regainregain

process of accountancyprocess of accountancy

control of the procedurecontrol of the procedure

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2. CLASSIFICATION OF STATE GUARANTEES

DIRECT STATE GUARANTEEDIRECT STATE GUARANTEE

1.1. Based on actsBased on acts

state budgetstate budget

other acts other acts

student creditstudent credit

housing credithousing credit

housing credit for housing credit for public servantspublic servants

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2. Specific governmental guarantee2. Specific governmental guarantee

based on governmental resolutionbased on governmental resolution

Performance: TAX AUTHORITYPerformance: TAX AUTHORITY

INDIRECT STATE GUARANTEEINDIRECT STATE GUARANTEE

Counter-guaranteeCounter-guarantee

Performance: guarantee companyPerformance: guarantee company

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3. INSTITUTIONAL FRAMEWORK

MINISTRY OF FINANCEMINISTRY OF FINANCE

• Evaluation / Follow upEvaluation / Follow up

• Counter sign / ControlCounter sign / Control

acceptance for specific governmental acceptance for specific governmental guarantees andguarantees and

guarantees on by-lawsguarantees on by-laws

• Proposal for appropriationsProposal for appropriations

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HUNGARIAN STATE TREASURYHUNGARIAN STATE TREASURY

• Data processData process

• Money transferMoney transfer

• AccountancyAccountancy

TAX AUTHORITYTAX AUTHORITY

Responsible forResponsible for

• Specific governmental guaranteesSpecific governmental guarantees

• Guarantees on by-lawsGuarantees on by-laws

•Agricultural guaranteesAgricultural guarantees

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GUARANTEE COMPANIESGUARANTEE COMPANIES

• EXIMBANK COEXIMBANK CO

• EXPORT CREDIT INSURANCE COEXPORT CREDIT INSURANCE CO

• HUNGARIAN DEVELOPMENT BANK COHUNGARIAN DEVELOPMENT BANK CO

• CREDIT GUARANTEE COCREDIT GUARANTEE CO

• RURAL CREDIT GUARANTEE FOUNDATIONRURAL CREDIT GUARANTEE FOUNDATION

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ACCEPTANCE OF GUARANTEES AND REGAINSACCEPTANCE OF GUARANTEES AND REGAINS

ExpendituresExpenditures 2000.2000. 2001.2001. 2002.2002. 2003.2003. 2004.2004.

Direct state quaranteesDirect state quarantees 0.1 0.1 - - - - 9,5 9,5 - -

Counter-guaranteesCounter-guarantees 5,7 5,7 7,3 7,3 3,4 3,4 2,9 2,9 2,7 2,7

————————————————————————————

ΣΣ 5,8 5,8 7,3 7,3 3,4 3,4 12,4 12,4 2,7 2,7

Bn HUFBn HUF

4. CHARACTERISTIC DATA

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IncomesIncomes 2000.2000. 2001.2001. 2002.2002. 2003.2003. 2004.2004.

Direct state quaranteesDirect state quarantees 3,0 3,0 2,9 2,9 2,7 2,7 1,9 1,9 0,5 0,5

Counter-guaranteesCounter-guarantees 2,7 2,7 2,1 2,1 1,5 1,5 1,0 1,0 1,9 1,9

————————————————————————————

ΣΣ 5,7 5,7 5,0 5,0 4,2 4,2 2,9 2,9 2,4 2,4

————————————————————————————————————————————————————

BalanceBalance -0,1-0,1 -2,3 -2,3 0,8 0,8 -9,5 -9,5 -0,3 -0,3

————————————————————————————————————————————————————

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Holdings of state guaranteesHoldings of state guarantees

Bn HUFBn HUF

2000.2000. 475,5475,5

2001.2001. 817,4817,4

2002.2002. 805,3805,3

2003.2003. 1 124,91 124,9

2004.2004. 1 166,11 166,1

2005.2005. 1 211,31 211,3

1. half1. half

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Outstanding Debts to StateOutstanding Debts to State

Bn HUFBn HUF

2000.2000. 7,97,9

2001.2001. 6,86,8

2002.2002. 3,43,4

2003.2003. 9,99,9

2004.2004. 9,59,5

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5. GUARANTEES FOR AGRICULTURAL SECTOR AND FOOD INDUSTRY

Yearly State Budget definesYearly State Budget defines

Objects of creditsObjects of credits

Percentage of guaranteePercentage of guarantee

Holdings of guaranteeHoldings of guarantee

Expenditure for acceptance of guaranteeExpenditure for acceptance of guarantee

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Decree of the Minister of Agriculture regulatesDecree of the Minister of Agriculture regulates

Conditions of guaranteeConditions of guarantee

Rights and obligations of the banks and debtorsRights and obligations of the banks and debtors

ProcedureProcedure

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Tax AuthorityTax Authority

Performs the acceptance of guaranteePerforms the acceptance of guarantee

Controls the relevant documents in situ as wellControls the relevant documents in situ as well

Makes resolution on application concerning Makes resolution on application concerning acceptance of guaranteeacceptance of guarantee

Transfers the relevant amount to creditorsTransfers the relevant amount to creditors

Obliges the deptor for repayment of the Obliges the deptor for repayment of the guarantee paid for the banksguarantee paid for the banks

Makes the necessary steps to collect the debtsMakes the necessary steps to collect the debts

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Agricultural GuaranteesAgricultural Guarantees

Holdings of GuaranteesHoldings of GuaranteesBn HUFBn HUF

2000.2000. 33,533,5

2001.2001. 36,236,2

2002.2002. 39,239,2

2003.2003. 36,536,5

2004.2004. 31,831,8

2005.2005. 50,650,6

1. half1. half

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Agricultural GuaranteesAgricultural Guarantees

Acceptance of guarantees and regainsAcceptance of guarantees and regainsMill. HUFMill. HUF

ExpendituresExpenditures IncomeIncome ss BalanceBalance

————————————————————————————————————————————————————

20002000 641,1641,1 120,7 120,7 -520,4 -520,4

20012001 2 723,42 723,4 83,4 83,4 -2 640,0 -2 640,0

20022002 641,0641,0 205,3 205,3 -435,7 -435,7

20032003 179,4179,4 68,1 68,1 -111,3 -111,3

20042004 404,3404,3 74,8 74,8 -329,5 -329,5

20052005 548,8548,8 108,4 108,4 -440,4 -440,4

1.half1.half

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Agricultural GuaranteesAgricultural Guarantees

Outstanding Debts to StateOutstanding Debts to State

2000.2000. 8,98,9

2001.2001. 4,84,8

2002.2002. 1,31,3

2003.2003. 1,61,6

2004.2004. 1,41,4

Bn HUFBn HUF

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6. EXPERIENCES OF THE

STATE AUDIT OFFICE

CONSTITUTION CONSTITUTION DECLARESDECLARES

The State Audit Office has to audit the final accounts of the The State Audit Office has to audit the final accounts of the budget and has to inform the Parliament concerning the budget and has to inform the Parliament concerning the execution of the budget and the regulatory of accounts. The execution of the budget and the regulatory of accounts. The appropriations are an integrated part of the budget.appropriations are an integrated part of the budget.

The audit of state guarantees is a very extended one: about 50% The audit of state guarantees is a very extended one: about 50% of transactions are controlled every year.of transactions are controlled every year.

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AUDIT FINDINGSAUDIT FINDINGS

in the first years after introducing state guaranteesin the first years after introducing state guarantees

the government exceeded the limit of the specific the government exceeded the limit of the specific governmental guaranteesgovernmental guarantees

the principle of gross accounting was neglected the principle of gross accounting was neglected (separate accounts should keep for expenditures and (separate accounts should keep for expenditures and incomes)incomes)

to spare expenditures: the government covenanted to spare expenditures: the government covenanted guaranteesguarantees

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in the last 5 yearsin the last 5 years

improvement of the practiceimprovement of the practice

failures were correctedfailures were corrected

proper and regulatory use of public moneyproper and regulatory use of public money