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The government consolidated the debts of local governments in three stages. The first round of debt consolidation involved settle ments and towns with less than 5000 inhab itants. The state assumed a total of HUF 74 billion in debts owed by 1710 settlements and towns stemming from 3848 contracts. In ac cordance with the applicable procedure, the local governments paid HUF 3.5 billion in security deposit to the treasury.

In the course of the consolidation of debts owed by settlements and towns with less than 5000 inhabitants

• the HUFdenominated debts of 1684 lo cal governments in the amount of HUF 50.5 billion were consolidated and HUF 73 million was paid to the Treasury as se curity deposit which came from the termi nation of loan agreements,


• the debts owed by local governments in Swiss franc (foreign currency loans in the amount of CHF 94 million owed by 97 local governments on the basis of 103 loan agreements) were also settled,


• 13 of the local governments included in the consolidation process had EURde nominated debts in the amount of 2.9 bil lion euros (on the basis of 16 agreements).

In this case, the government also decided on debt settlement and concurrently or dered the affected organisations to pay HUF 50.5 million and EUR 50.000 as se curity deposit to the account of the Gov ernment Debt Management Agency. Pursuant to statutory provisions, a sepa rate government resolution stipulated that the debt consolidation of 14 towns must be realised by 28 June 2013 in accordance with the 2013 Act on the Budget. The reason for this was that some of these local governments were either under debt settlement proceedings or they only had interest for default stemming from previous loans or their agreements could not come under the scope of consolidation (e.g. a financial lease agreement), and there were seven local governments which did not want to take advantage of consolidation.

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The exchange rate used in the procedure was HUF 238.6 for Swiss franc and HUF 288.3 for eurodenominated loans. The con solidation of the debts was entered into the accounts on the basis of portfolio data record ed on 11 December 2012, followed by finan cial settlement on 28 December 2012.

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In the second stage of debt consolidation, pursuant to Article 72(1) of Act CCIV of 2012 on the 2013 Central Budget of Hungary, the Hungarian State partially assumed the debt portfolio, and the contributions associated with it up to the date of assumption as at 31 De cember 2012, of local governments with popu lations over 5000 – including the Municipality of Budapest, the district local governments. The debts affected by partial assumption included outstanding debts due – on loans or credits, se curities constituting a debt instrument as well as the issuance of bills of exchange in the case of assumed debts – to a financial institution in accordance with Act CXCIV of 2011 on Hun gary’s Economic Stability and the act on credit institutions and financial enterprises. The Hun garian State assumed the full amount of debts and related contributions payable by local gov ernments with over 5000 inhabitants as defined in Article 72(2) of the Act, in other words, the loans taken out in connection with inpatient institutions and certain specialised social and child protection institutions which had already been transferred over to the state for operation. A further condition for consolidation was that the given local government should not have any debt settlement procedure in progress as at 31 December 2012, pursuant to the act on the debt settlement procedure.