Hungary has made progress in efforts to begin talks with the International Monetary Fund and the European Union over a loan, a government official said, helping extend this year’s rally in the forint.
The start of negotiations “hinges on a decision by a top policy maker,” Roland Natran, a deputy state secretary at the Economy Ministry, told Gazdasagi Radio yesterday, according to the audio file posted on the station’s website today. “This could be tomorrow or it could be later, but on the basic questions the positions have moved very close to one another.”
Hungary is seeking to quell investor concern that it isn’t committed to an IMF deal after the European Commission, the EU’s executive arm, said March 7 that the government failed to meet preconditions for the start of talks four months after asking for aid as the forint dropped to a record and the country’s sovereign-credit rating was cut to junk.
The forint strengthened 1 percent to 291.24 per euro as of 2:50 p.m. in Budapest. It has advanced 7.9 percent against the euro this year, the fourth-best performance in the world, after Prime Minister Viktor Orban pledged Jan. 5 to reach a loan agreement “quickly.”
The currency dropped 3.2 percent in the first five trading sessions this month as investors including BlackRock Inc., Citigroup Inc. and Royal Bank of Scotland Plc speculated that the government may balk at compromising on policy to get a loan.
The IMF is “more positive” than it appears about its talks with Hungary, UniCredit SpA’s Chief Executive Officer Federico Ghizzoni told journalists in Vienna last night after meeting a senior IMF official this week. He said Hungary should “start to negotiate seriously” and that he was certain a solution would be found “within the year.”
“They are a bit more positive than it appears in the papers,” Ghizzoni, whose bank has a unit in Hungary, said of the IMF. “Based on a realistic approach, meaning that Hungary cannot survive alone and Europe cannot have another Greece, euro zone or not, it’s indispensable to find a solution.”
The European Commission two days ago took a formal step toward seeking a court order to require Hungary redraft laws on the judiciary and data-protection agency and asked for more information on planned changes to a new central bank law. The issues have blocked the start of aid talks.
The commission gave Hungary one month instead of the usual two to rewrite the laws or prove they are in line with EU standards after a government response Feb. 17 failed to resolve the concerns.
Hungary wants an IMF deal to reduce financing costs, Orban said yesterday in Budapest, even as he indentified policies over which he is unwilling to compromise, including a tax system he calls “proportional.”
“We need a financial safety net, they call this an IMF deal,” Orban said. “Analysts are right that Hungary can finance itself. But it matters at what cost.”
The government has “no A and B plan” on an IMF deal, Tamas Fellegi, the minister in charge of aid negotiations, said yesterday. The “contentious issues” between the EU and Hungary are of political and not economic nature, Fellegi said, adding that these “complicated political problems” need to be solved before negotiations can start.
Once talks start, negotiations will include the personal and corporate income taxes, the financing of public transport companies, local-government debt, special industry taxes, one- time fiscal measures and a structural overhaul, Fellegi said.
Orban yesterday said he won’t compromise on the tax regime, which he said he built to protect the middle class. Orban introduced a flat rate of personal income tax in 2011 and was forced to suspend it this year after budget revenue plunged. The budget deficit reached 50 percent of the government’s annual target in the first two months of this year.
The European Commission last month proposed suspending 495 million euros ($655 million) in development subsidies to press Hungary to narrow the shortfall in a sustainable way. EU finance ministers will in “all certainty” approve the proposal this month, Peter Szijjarto, Orban’s spokesman, said March 5, adding that Hungary would take the necessary measures to avoid losing the grants.
The commission raised its estimate for Hungary’s budget gap for this year and 2013 and is urging the Cabinet to implement further budget cuts.
The deficit may be 3 percent of gross domestic product this year, compared with a 2.75 percent January forecast and the government’s 2.5 percent target, according to a document posted on the EU’s website. For 2013, the commission sees a 3.6 percent gap, compared with a 3.25 percent January forecast and the Cabinet’s 2.2 percent target.
Orban levied special taxes on the banking, energy, retail and telecommunications industries, forced lenders to swallow losses on foreign-currency household loan repayments and nationalized private pension-fund savings to narrow the budget gap and plug holes after cutting the personal income-tax rate.
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