Hungary failing to reach a bailout agreement with the International Monetary Fund would raise the risk of the government extending special industry taxes, said the head of the country’s largest company.
The pressure the business community is putting on Prime Minister Viktor Orban to sign an IMF deal in a deteriorating economy is “very high,” Zsolt Hernadi, chairman of Mol Nyrt. (MOL), Hungary’s largest refiner with a market capitalization of 1.95 trillion forint ($8.9 billion), said in a March 27 interview at the company’s Budapest headquarters. There’s a “high likelihood” of Hungary obtaining a loan soon, he said.
“If there is no agreement with the IMF, it could lead to the extension of the crisis tax or the levying of other taxes on small businesses so as to keep the public budget in balance,” said Hernadi, 51. “The pressure from the business environment and the macroeconomic environment is very high to fulfill the potential conditions of an IMF agreement and to sign it.”
Hungary has failed to meet European Union conditions to start talks on an IMF-led loan four months after Orban requested financial assistance as the forint fell to a record low against the euro and the country’s sovereign credit rating was cut to junk. The EU has blocked talks because of its objections to laws it says affect the independence of the central bank, judiciary and the data-protection office.
Since winning power in 2010, Orban has relied on extraordinary taxes on the energy, banking, retail and telecommunication industries to plug budget holes. The Cabinet has pledged to end the levies after this year with the exception of the financial industry, where it will fall by 50 percent.
Mol, which operates in 13 countries including Pakistan, Iraq, Syria and Croatia, paid 29 billion forint in the special tax last year, when it raised net income 46 percent to 152 billion forint.
Mol rose 7.6 percent this year, compared with a 9.9 percent increase in Hungary’s benchmark BUX index. The stock dropped 0.8 percent yesterday to close at 18,670 forint.
The company relies on exploration projects to boost profitability as the economic crisis saps demand for fuel in eastern Europe. High oil prices, along with lower demand, refining overcapacity and “very tight” regulations create a competitive disadvantage that will have a “dramatic” impact on European refineries, Hernadi said.
Crude oil for May delivery fell $2.23, or 2.1 percent, to $105.10 a barrel at 12:53 p.m. on the New York Mercantile Exchange yesterday. Futures reached $110.55 on March 1, the highest intraday price since May 4. Brent oil for May settlement dropped $1.83, or 1.5 percent, to $123.71 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract’s premium to West Texas Intermediate crude traded in New York was at $18.89, up from $18.21 on March 27.
“We expect that oil prices remain high in the mid-term but we do not see the likelihood of a significantly higher level than today,” Hernadi said. “Many refineries will fall in the next years. But we see it as an efficiency issue. Those refineries that adapt to change and are able to increase their efficiency have better chances to stay alive. We believe that we will be among those.”
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