Hungary Postpones Central Bank Vote as Forint Forces IMF Bargain
Hungarian ruling-party lawmakers postponed the vote on amendments to a disputed central bank law, signaling the government’s willingness to compromise for a bailout agreement to shield the forint.
Parliament will probably vote on the bill before going into summer recess on July 15, Antal Rogan, the head of the ruling Fidesz party’s parliamentary group told reporters today. Mihaly Varga, the country’s chief bailout negotiator, asked for the vote to be delayed over the weekend to consider proposals from the European Central Bank.
Prime Minister Viktor Orban is seeking to revive bailout negotiations with the International Monetary Fund and the European Union, held up by a central bank law that the institutions said jeopardized monetary policy independence. Government-initiated amendments to the law “don’t go far enough” to re-establish monetary-policy independence and “fail to address” key concerns, the ECB said on May 31.
“It’s obvious the government panicked, they got scared by the sudden weakening of the forint,” Daniel Bebesy, who helps oversee $1.5 billion at the Budapest Fund Management, said by phone. The delay won’t bring an immediate break through as the government will stick to its strategy of playing for time, he said.
The forint plunged to its weakest level against the euro in more than four months on June 1 after sliding 4.7 percent in May. It rose 0.2 percent to 304.39 per euro by 10:54 a.m. in Budapest. The cost of insuring against default on Hungarian government debt for five years with credit-default swaps rose 3 basis points to 628 basis points, the highest on a closing basis since Jan. 18.
Hungary’s plans to expand the Monetary Policy Council and nominate a third vice president without consulting the central bank remain a concern, similarly to frequent changes in the remuneration of the bank’s decision-making bodies and the mandate of the council, the ECB said.
The IMF has no dates for the possible start of aid talks, which Orban requested in November, and is in touch with authorities on “actions needed” to ensure central bank independence, IMF spokesman Gerry Rice said on May 31, according to the transcript of the press conference.
Delaying the vote “is a positive message in as much as it shows the government is sensitive to changes in the forint’s exchange rate,” Eszter Gargyan, economist at Citigroup Inc. in Budapest, said by phone. “As for its credibility, I don’t find it too convincing given that negotiations with international partners have been going on since January and the government is fully aware of the concerns.”
Hungary won the go-ahead from the European Commission to start negotiations on the financial aid package on April 25 after the government pledged to amend the central bank.
The lifting of the EU’s infringement procedure depends on the country amending the law, commission spokesman Olivier Bailly told reporters in Brussels today.
“There are indeed some pending questions” by the ECB and the IMF, Bailly said. “We want these clarifications to be fully made. This lifting of the infringement will be done provided that the national law on the central bank is fully amended.”
The government won’t make concessions from its “sovereignty” or national interest for an aid agreement, Andras Giro-Szasz, a spokesman for the government said yesterday, adding that delays to starting talks on the bailout were caused by the EU’s slow decision-making.
“Our baseline is unchanged in that central bank act changes will occur at some point when forced by the market; we’re not at that stage yet but nearing it,” Peter Attard Montalto, a London-based economist at Nomura International Plc said in an e-mail today.
Hungary can finance itself “indefinitely” without aid from the IMF, Orban said last week, adding the country won’t “yield to blackmail and won’t accept preconditions.”
“The government is taking a big gamble which appears increasingly irrational in the current European environment,” Gargyan said.
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