Orban Seeks New IMF Loan for Hungary After All

World | September 7, 2012, Friday // 16:37|  views

Hungarian PM Viktor Orban has been going changing his mind back and forth with respect of a new IMF loan deal for Hungary. Photo from socialistsanddemocrats.eu

Hungary needs and will obtain a credit line from the International Monetary Fund even as the government opposes the conditions currently demanded for the aid, Hungarian Prime Minister Viktor Orban has stated.

"Safety is worth very much to us, that's why we need an IMF deal," Orban said in an interview with state-run Kossuth radio today.

"I think it's necessary, it will happen, we will strike a deal -- but not on this basis," he declared, as cited by Bloomberg.

His new statement comes after on Thursday in a Facebook video Orban rejected what he said were the Washington- based lender's criteria a day after he predicted that a loan agreement may be reached in the fall. The forint fell the most this year before paring losses.

Hungary has reversed its approach to the IMF several times since Orban came to power in 2010 on a pledge to end austerity.

As his self-described "unorthodox" economic policies helped push the economy into a recession and the country's credit grade to junk status, Orban reached out to the lender and formally requested aid in November 2011.

"I can't imagine a tougher job at the IMF right now than trying to negotiate a financial program with the Hungarian authorities -- except perhaps trying to figure out what to do with Greece," Benoit Anne, a former IMF economist who is now head of emerging-markets strategy at Societe Generale SA in London, said in an e-mail.

The forint dropped as much as 1.7% against the euro on Thursday, when European Central Bank President Mario Draghi's announcement of plans to buy the government bonds of crisis- stricken euro-area members lifted other currencies in the region

The Hungarian government's efforts to protect a 300 billion-forint (USD 1.3 B) payroll tax-cut plan for 2013, aimed at jump- starting the economy in the face of IMF and European Union criticism, is at the heart of the dispute over the loan conditions, Orban said Friday.

The Cabinet also opposes demands to cut pensions and take away family benefits, he said.

The government maintains it has enough resources in the budget to fund the jobs plan, while the international lenders say the measures threaten efforts to reduce the budget deficit, Orban said.

"At this cost we don't want a deal," Orban said.

The ECB's euro-area bond-purchase plan may also show that new tools are available for authorities outside the common currency area, Orban said, without elaborating.

Hungary's government "needs to do everything" to reach an aid agreement, Antal Rogan, the parliamentary leader of Orban's Fidesz party, said Friday after a three-day party meeting in Sarvar, western Hungary.

The Cabinet should take into account IMF and EU policy proposals and should be open to modify the 2013 budget, which legislators will continue to discuss next week in Parliament, Rogan said in comments broadcast on HirTV.

The ruling party backs "targeted" spending cuts, such as for the reduction of state bureaucracy, while rejecting the trimming of pensions or scrapping plans for payroll tax cuts, Rogan said.

The forint rose 9.7% against the euro this year, the third-most in the world after the Chilean and Colombian pesos as investors speculated that an IMF agreement was within reach. The rally may have emboldened Orban to turn away from the lender, while forint losses last November, in January and in June prompted the government to work toward a compromise.

Negotiations with the IMF during a review of a previous loan and a possible extension broke down months after Orban came to power in 2010. Orban then said Hungary was better off without the lender as it needed policy space to conduct an "economic freedom fight."

Hungary's industrial output plunged in July as car production slowed, confirming a trend that drove the economy into a deeper recession than previously estimated.

Industrial output dropped a workday-adjusted 2.2 percent in July from a year earlier and fell 1.2 percent from June, the statistics office in Budapest said today. The median estimate of 10 economists in a Bloomberg survey was for an increase of 0.7 percent. Gross domestic product declined 1.3 percent in the second quarter from a year earlier, compared with a 1.2 percent preliminary estimate, the stats office said in a separate release today.

Production declined in the second quarter from the same period last year in every industry except information and communications. Construction output plunged 10.7 percent while agricultural production dropped 10.4 percent. Final consumption dropped 1.8 percent in the second quarter.

Orban asked for aid in November as the country's credit grade was cut to junk at Standard & Poor's, Fitch Ratings and Moody's Investors Service, and debt auctions failed, helping push the forint to a record low against the euro. The government earlier said it may reach a loan agreement by the end of October.

Hungary's request for a loan of about 15 billion euros was delayed multiple times because of Orban's resistance to adhere to legal and economic conditions set by the lender and the EU.

A month after seeking assistance, Orban said Hungary can do without IMF aid, recommitting to negotiations two weeks later with the forint at a record low. Negotiations formally started in July following an eight-month delay after the government compromised on a central-bank law that the European Central Bank said undermined monetary-policy independence.

The Washington-based lender asked Hungary to scrap a bank tax in exchange for the loan, which wouldn't serve the nation's interests, Orban said in a video message from a retreat of his ruling party in Sarvar, near the Austrian border, posted on his page at the social media website Facebook Inc.

"The meeting of the parliamentary group decided, and I myself share their opinion, that at this cost we don't need it," Orban said. He said he would "seek an alternative negotiating proposal," without elaborating.

Orban won an unprecedented two-thirds parliamentary majority in the 2010 elections. Even as his support has slipped, his ruling party, Fidesz, has maintained a lead over the opposition more than halfway through the premier's four-year term.

Fidesz had 17% support among eligible voters, compared with 14% for the Socialist Party, its nearest rival, state news service MTI reported Aug. 23, citing the polling company Ipsos. The survey of 1,500 adults was carried out between Aug. 12 and Aug. 19 and has a margin of error of 2.5 percentage points, MTI said.

Hungary should move away from "ad hoc" taxes to plug budget holes and should create a more "business friendly" environment to boost growth and make budget financing sustainable, the IMF said in a July 26 statement after holding what it called a week of "constructive" talks in Budapest.

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Tags: Viktor Orban, Hungary, Hungarian Prime Minister, IMF, IMF loan, Facebook, Fidesz, International Monetary Fund


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