Hungary Wants Change in IMF Discussions to Credit Line
Prime Minister Viktor Orban said today on state radio that he considers an accord to be within reach and wants the Washington-based lender’s help to lower financing costs for the European Union’s most-indebted eastern nation.
“There has been no agreement because the Hungarian government has made it clear” that “Hungary’s liquidity doesn’t make it necessary to ask for an IMF loan and that’s why we want to negotiate a precautionary credit line which provides possible help in case of a further deterioration of the euro area,” Andras Giro-Szasz told TV2 in an interview today.
Hungary, mired in its second recession in four years, requested aid in November as its credit rating was cut to junk. Talks for a loan of about 15 billion euros ($19.5 billion) were delayed multiple times because of Orban’s resistance to adhere to legal and economic conditions set by the IMF and the EU.
Investor faith in Hungary’s commitment to obtain an IMF loan has helped the forint rise 12 percent this year against the euro, the most in the world, after plunging 15 percent in the second half of last year. The forint strengthened 0.2 percent to 281.06 per euro by 9:48 a.m. in Budapest.
Hungary can “stand on its own feet” and wants to use IMF aid to lower its financing costs, Orban told MR1 state radio today. He didn’t object to the reporter’s question about the goal of obtaining an IMF loan.
“We’re not far from a good agreement” with the IMF, Orban said in an interview with state radio MR1 today. “There’s a good chance.”
The IMF has said Hungary qualifies for a standby loan facility, which according to the lender’s rules comes with conditions and quarterly policy reviews. Hungary need not draw on the funds, IMF representative in Budapest Iryna Ivaschenko said on Oct. 4.
Orban shunned the IMF after taking office in 2010 to prevent interference in what he called his “unorthodox” measures. They included the effective nationalization of $13 billion of private pension-fund assets, extraordinary industry taxes to raise revenue for the budget, Europe’s highest bank levy and forcing lenders to swallow exchange-rate losses on foreign-currency mortgages.
The measures damaged investor confidence, cut investments, helped push the economy into a recession and cost the country its investment grade as Standard and Poor’s, Fitch Ratings and Moody’s Investors Service have all cut Hungary’s credit to junk.
Orban reversed his policy last year when the state started struggling to raise funds at debt auctions, the forint plummeted and the country’s sovereign credit grade was cut to junk.
Hungary is open to “any kind” of credit line to prop up financing, Orban told MTI state news service on Jan. 8. Hungary’s talks with the IMF are aimed at “a standby credit line with conditionality and control as its key elements,” Tamas Fellegi, Hungary’s former aid negotiator, said Jan. 12 after meeting IMF Managing Director Christine Lagarde.
The nation needs to move away from “ad hoc” taxes 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 a week of talks in Budapest. On Oct. 4 it said the government doesn’t have to draw funds from a standby loan. There is no date for the next round of talks.
Hungary yesterday announced it would sell euro-denominated retail bonds as it seeks to diversify financing amid investor concern over the government’s commitment to reach an IMF deal. The country won’t sell foreign debt on international financial markets before an IMF agreement, Laszlo Andras Borbely, deputy chief executive officer at the debt agency, said yesterday.
There’s no evidence Hungary is making progress toward a financing deal with the IMF even though an agreement would help stabilize the country’s credit rating, Frank Gill, analyst at Standard & Poors’s said on Oct. 10. An IMF program would be an important anchor for Hungary’s creditworthiness, Gill said.
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