By Krisztina Than and Sandor Peto
BUDAPEST (Reuters) - The biggest meeting room at the National Bank of Hungary, once a sanctuary for academic debate between the bank's experts and leaders, is now the preserve of one of new Governor Gyorgy Matolcsy's closest aides.
The change of use is symbolic of a sweeping takeover during which some of the bank's most respected economists were dismissed within less than a week, several sources at the bank told Reuters on condition of anonymity.
Investors expressed concern about the bank's independence with the appointment of Matolcsy, a close associate of Prime Minister Viktor Orban who has been accused by the European Union and United States of undermining Hungary's young democracy.
The new governor, who hiked taxes on banks and key sectors and nationalized private pension assets in his previous role as economy minister, is only in his second week in the job.
He has not yet outlined what the bank will do, although he says he is considering new tools to help the sickly economy. The bank says the dismissals were designed to keep a lid on costs and there were other rooms where debates could be held.
But his early decisions about how the bank itself will run suggest Matolcsy does not want an organization that will question his plans, a concern for investors who believe the central bank should be a brake on any government policies that could weaken the currency.
During a process which the sources described as "surreal" and "brutally arrogant", newcomers strode the bank's corridors and took pictures of rooms where employees were sitting without giving them any information.
"What you can feel now is a sense of uncertainty which makes people feel intimidated," one of the sources said.
The former meeting room on the fourth floor of the bank's magnificent 108-year old building, which fits about 50-60 people, is now the office of Roza Nagy, his new chief director.
Nagy, who worked for Matolcsy at the economy ministry and is now in charge of operative control and strategic planning at the bank, is just one of the close allies now in key positions.
The changes signal that the professional culture within the bank, which has made it the top workshop for economic analysis in Hungary, could change markedly, sources at the bank said.
The main risk is that the bank's operation could become less transparent, with less professional dialogue and independent thinking within the bank's thick walls.
"There's been a culture of debate within the bank, anybody could say Mr. Governor you are wrong. Nobody was afraid to express their views even if those contradicted those of the governor or his deputies," one of the sources said.
Among the first asked to leave within days of Matolcsy's arrival were Aron Gereben, the head of financial analysis and the bank's chief economist Agnes Csermely.
Peter Benczur, the head of research department, was also dismissed, the bank said. He was regarded as one of the top brains at the bank with a Ph.D in economics from the Massachussetts Institute of Technology and had worked at the bank since 2001.
"During the transformation of the organization, the NBH wants to keep a tight lid on payroll," its press office said.
It also said the large meeting room, which is now the chief director's office, was only "one of the rooms suitable for holding discussions" and had not been the only venue for professional debates.
"The work at the bank will in no way be influenced if discussions are held in some other meeting room," it said.
Even before he was sworn in, Matolcsy had asserted his control over the bank much the same way as Orban has done over the country with his party's two-thirds parliamentary mandate.
The prime minister argues he was left a mess by his Socialist predecessors and has since tamed Hungary's budget deficit and stopped it following Greece into near bankruptcy.
Matolcsy demoted two of the deputy governors, Julia Kiraly and Ferenc Karvalits, who were appointed under a previous government and might oppose monetary expansion.
The third vice governor, Matolcsy's right-hand man Adam Balog, saw his role enhanced greatly.
Matolcsy has set up a cabinet office and even a separate protocol department. The structure of the bank has a lot more hierarchy than before, sources said. That makes Matolcsy less accessible to his employees and could slow decision making.
The speed of the shakeup has shocked people at the bank, even though a leadership change naturally brings about some staff changes at any institution.
Little is known at this stage about how the bank will communicate with the media and markets under the new leadership, and some investors fear that the fiercely top-down approach of the new governor could stifle debate.
The bank's press office told Reuters that, for the time being, it would not change its ways of communicating and "should there be a change, the press would be informed appropriately about that".
Another source said the new governor had kept many talented staff while bringing in economists with expertise from the economy ministry. Daniel Palotai, former head of macroeconomic department at the economy ministry is its new chief economist.
Matolcsy gave very few interviews as a minister and rarely held news conferences, a lack of transparency which Nomura economist Peter Attard Montalto said is likely to be transferred to the central bank.
"We will see a dramatic scaling back of research being published and no criticism of the government," he said. "The key risk is that policy changes are slipped out under the radar ... as we go down the road of unorthodoxy."
(Editing by Philippa Fletcher)