The government and the fund may disagree on economic policy issues, such as a flat-rate income tax, prolonging the negotiations, William Jackson, an emerging-markets economist at London-based Capital said in an e-mailed note today.
The forint and Hungarian debt have rallied in the past week after the government said it will amend a disputed law on the central bank to remove an obstacle for talks to begin. Hungary requested aid from the IMF and the European Union in November after its credit rating was cut to junk and the forint fell to a record low against the euro.
“Our view is that the government will only reluctantly concede ground when forced to by financial market strains,” Jackson wrote. “The recent rally in Hungary’s financial markets will have reduced the government’s incentive to make further concessions.”
The forint has been the world’s best performer in the last five days, gaining 3.1 percent against the euro, according to data compiled by Bloomberg. The extra yield on Hungary’s international bonds over U.S. Treasuries fell 4 basis points to 548 basis points today, JPMorgan Chase & Co.’s EMBI Global index shows.
The cost of insuring the nation’s government debt against non-payment for five years using credit-default swaps declined 30 basis points to 534 in the past week, data compiled by Bloomberg show.
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