Bloomberg News

IMF Expects ‘Tangible Steps’ From Hungary Before Aid Talks

January 16, 2012

(Updates with Hungarian government comment in fourth and last two paragraphs.)

Jan. 13 (Bloomberg) -- The International Monetary Fund expects “tangible steps” from Hungary before deciding “when and whether” to start negotiations for financial aid, Managing Director Christine Lagarde said after meeting the country’s envoy.

The IMF “will need to see tangible steps that show the authorities’ strong commitment to engage on all the policy issues that are relevant to macroeconomic stability,” Lagarde said in an e-mailed statement yesterday. “Support of the European authorities and institutions would also be critical for successful discussions of a new program.”

Hungary is reviving bailout talks with the IMF and the European Union after international creditors suspended negotiations last month on concern new central bank legislation violates monetary-policy independence. Hungary was the first EU member to obtain an IMF-led bailout in 2008 and has to start reimbursing the IMF share of the 20-billion euros ($25.6 billion) package this year.

Hungarian negotiator Tamas Fellegi told reporters at the IMF yesterday that he discussed with Lagarde and the IMF staff ways to help identify “the critical issues” for aid talks to start “as soon as possible.” No indication was given of the size of the potential aid package, Fellegi said.

The talks will aim at a standby credit line with conditionality and control as its key elements,’’ Fellegi said.

The forint depreciated 0.3 percent to 309.03 per euro by 9:18 a.m. in Budapest, compared with a record low of 324.24 last week.

“Comments from Lagarde suggest negotiations, if they ever begin, could prove much more tricky” than markets expected, Timothy Ash, a London-based economist at Royal Bank of Scotland Group Plc, wrote in a research report.

Fitch Ratings

Fitch Ratings on Jan. 6 followed Moody’s Investors Service and Standard & Poor’s in downgrading the country’s sovereign- credit grade to junk. Hungary needs to secure a bailout from the IMF in the first half to restore market confidence, Paul Rawkins, head of the emerging Europe sovereign-ratings group at Fitch, said in an interview with Bloomberg Television this week.

Prime Minister Viktor Orban had shunned the IMF since taking office in 2010 to prevent interference in what he called his “unorthodox” measures. They included the effective nationalization of $13 billion of private pension-fund assets, extraordinary industry taxes to raise revenue for the budget, Europe’s highest bank levy and forcing lenders to swallow exchange-rate losses on foreign-currency mortgages.

Hungary accepts some of the EU’s criticism of its central bank law, while the two sides remain far apart on other aspects of the legislation, Orban said in an interview with state-run MR1 radio today.

The European Union doesn’t have the right to influence Hungary’s handling of its judiciary and a dispute over the country’s data protection ombudsman “seems a speck of dust in the machine,” Orban added.

Orban told foreign correspondents in Budapest yesterday that his government “is ready to negotiate all the points” for a loan agreement and is awaiting “convincing” arguments from the EU on any objections to its laws and policies.

--Editors: Kevin Costelloe, Brendan Murray

To contact the reporters on this story: Sandrine Rastello in Washington at srastello@bloomberg.net; Andras Gergely in Budapest at agergely@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net


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