Hungary Economy Shows Strength as Cabinet Seeks Loan, Orban Says
January 13, 2012, 1:46 AM ESTBy Zoltan Simon
Jan. 12 (Bloomberg) -- Hungary’s economy has proved “far stronger than may suggested” and the government plans to maintain market financing after clinching an International Monetary Fund loan, Prime Minister Viktor Orban said.
Hungary is “ready to negotiate all the points” for a loan agreement and is awaiting “convincing” arguments from the European Union on any objections to laws and policy, Orban told foreign correspondents in Budapest today.
“Our general approach is that we’re ready to negotiate all the points,” Orban said during an hour-long conversation in Parliament. “What we need is not political opinion, but arguments.”
Hungary is trying to revive bailout talks with the EU and the International Monetary Fund, which suspended negotiations last month on concern new central bank legislation violates monetary-policy independence. Fitch Ratings on Jan. 6 followed Moody’s Investors Service and Standard & Poor’s in downgrading Hungary’s sovereign-credit grade to junk.
The forint traded at its strongest level against the euro in two weeks today on speculation that Hungary will reach a bailout agreement. The currency rose 1.5 percent today to trade at 306.95 per euro at 1:15 p.m. in Budapest. It has weakened 12 percent in the past six months, the worst performance among more than 170 currencies tracked by Bloomberg.
‘More Optimistic’
The country sold 44 billion forint ($181 million) of debt today, 11 billion forint more than targeted, in notes maturing in 2014, 2017 and 2022 at a biweekly sale, according to data from the Debt Management Agency on Bloomberg. The yield on the 2022 securities was 9.38 percent, compared with 9.70 percent at the last sale Dec. 29.
“Now the markets are more optimistic,” Orban said. “The fundamentals of the Hungarian economy proved to be far stronger than many suggested or appreciated or perceived.”
Hungary wants to continue financing itself from the market after agreeing on a loan, Orban said. That would allow the government to shift its focus from financing issues to plans to boost growth, the premier said.
“My best case scenario is that in one month the main subject related to the Hungarian economy is not how to finance the economy but how successful the growth plan could be,” Orban said.
Tamas Fellegi, Orban’s chief negotiator on a bailout, will meet IMF Managing Director Christine Lagarde today in Washington. Fellegi, along with central bank President Andras Simor, plans to meet European Central Bank President Mario Draghi next week.
EU Standoff
The EU escalated its standoff with Hungary yesterday, keeping bailout talks on hold and threatening to cut subsidies as punishment for flouting the bloc’s rules on central-bank independence and deficit overruns.
The European Commission said it may take Hungary to court for possibly violating EU laws on the independence of the central bank, the judiciary and the data protection authority, the trading bloc’s executive said yesterday in separate statements.
Hungary may also face the suspension of so-called cohesion funds from next year if it fails to correct its budget policies which were of an “unsustainable nature,” EU Economic and Monetary Affairs Commissioner Olli Rehn told reporters yesterday. He said the commission will press ahead with its so- called excessive deficit procedure against Hungary.
Budget Outlook
Hungary’s budget gap without one-time measures reached 252 percent of the government’s initial year-end target, the Economy Ministry said on Jan. 9. The government can meet its deficit goal of 2.94 percent of gross domestic product for 2011 because of revenue from the effective nationalization of private pension funds and extraordinary industry taxes, the ministry said.
Hungary plans to keep its deficit below 3 percent of GDP this year and in 2013, Orban said. The European Commission, in a Nov. 10 report, reduced its estimate for Hungary’s 2012 deficit to 2.8 percent of GDP from 3.3 percent. Yesterday, it said Hungary’s shortfall would be below 3 percent this year “only thanks to one-off revenues” and may reach 3.25 percent in 2013.
“In 2012, without any extraordinary measures, the budget deficit will be” for “the first time since joining the EU below 3 percent,” Orban said. “The Commission did not deny that fact, which is promising, so I think we are very close to each other, we agree on 2012 and even on 2013.”
--Editors: Balazs Penz, Andrew Langley
To contact the reporters on this story: Zoltan Simon in Budapest at zsimon@bloomberg.net;
To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net
