Hungary would undermine its credibility by selling Eurobonds before obtaining a loan from the International Monetary Fund, warned the chief executive officer of the nation’s largest bank.
“The government selling Eurobonds before an IMF agreement is not a good idea,” Sandor Csanyi, OTP Bank Nyrt.’s chairman and CEO, said yesterday in Budapest. “Such a move would reduce the government’s credibility” when it comes to its intentions of reaching an agreement on an IMF loan.
Hungarian Premier Viktor Orban has failed to meet European Union conditions to start talks on an IMF-led loan four months after he requested aid as the forint fell to a record against the euro and the country’s sovereign credit grade was cut to junk. Royal Bank of Scotland Group Plc, Nomura International Plc and 4Cast Ltd. said this month that the government may sell foreign-currency debt before a deal to reduce funding pressures.
An IMF loan is “crucial” for Hungary and the government will obtain it because “it’s in the interest of the government and in the interest of everyone in Hungary,” said Csanyi, 59.
The European Commission, the EU’s executive, has blocked the start of talks on a loan, citing concerns about new laws affecting the independence of the central bank, the judiciary and the data-protection agency. The Commission has also voiced concerns about media pluralism in Hungary.
The delay drove up bond yields and pushed down the forint, busting a rally that began with Orban promising a swift bailout agreement in January.
The forint has weakened 1.8 percent since reaching its strongest level in five months on Feb. 21. The currency was little changed yesterday, trading at 291.68 per euro at 6:09 p.m. in Budapest. The currency has advanced 8 percent this year after a 15 percent decline in the second half of 2011.
The yield on the benchmark 10-year government bond rose to 9.03 percent yesterday from 8.98 percent on March 26. The yield reached 10.8 percent on Jan. 4, the highest ever for that security.
The government may sell foreign-currency denominated bonds before an IMF deal as market conditions are “very suitable” for an issue, Debt Management Agency Chief Executive Officer Istvan Torocskei said, Reuters reported on March 22. The best conditions for such a sale would be after an IMF agreement, the Economy Ministry said on March 26, according to the state news service MTI.
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