Forint Drops to 2-Week Low as IMF Said to Suspend Talks

The forint dropped to the lowest level in two weeks against the euro after a report said the International Monetary Fund suspended aid talks with Hungary.

The forint dropped as much as 1.1 percent to 282.84 per euro, the weakest since Oct. 11, before paring losses to trade at 281.62 by 2:55 p.m. in Budapest, down 0.7 percent.

The IMF doesn’t plan to restart aid talks with Hungary unless there’s a “radical” change in economic policies, news website Origo reported today, citing unidentified government officials. The talks “haven’t been suspended at all,” said Mihaly Varga, the country’s chief negotiator, according to MTI state news service. The lenders are evaluating Hungary’s budget plans, MTI said, citing an interview with Varga.

“Whilst talks with the IMF have not formally, broken down, the stalemate we are currently in is as good as the same thing,” Peter Attard Montalto, an economist at Nomura International Plc in London, wrote in a note to clients. “The market is beginning to react to the fact that the IMF will not be returning to Hungary anytime soon.”

Hungary requested aid in November after its credit rating was cut to junk. Talks over an IMF-led loan were repeatedly delayed because of Prime Minister Viktor Orban’s resistance to adhere to legal and economic conditions set by lenders. Fiscal measures announced this month, which focused on tax increases for banks, don’t satisfy the IMF as they stifle economic growth and threaten long-term debt financing, according to Origo.

The yield on the nation’s five-year euro-denominated bond dropped to 4.92 percent today from a high of 10.3 percent on January 10. The forint is the best-performing currency this year, having risen 11.5 percent on bets the country will seal an IMF deal.

Respect, Trust

Hungary this month started an ad campaign in local newspapers, saying it “won’t give in” to the IMF’s conditions and demanding “respect and trust” from the Washington-based lender. Orban has repeatedly said that a deal was in sight, while explicitly rejecting policy changes needed for a loan.

“As we said earlier, there are no dates yet for the negotiation mission to return to Budapest,” Iryna Ivaschenko, the IMF’s representative in Budapest, said in an e-mailed response to questions. “As a general policy, we don’t comment on rumors.”

High-ranking IMF officials, at an annual meeting in Tokyo this month, demanded that the government stop the media campaign and said they would “no longer assist to Orban’s games,” Origo said.

‘Waking Up’

Investors “seem to be finally waking up to the fact that this government is not committed to getting a multi-lateral deal soon,” Luis Costa, a strategist at Citigroup Inc. (C) in London, said in an e-mail. “The markets have been too complacent about Hungarian risk.”

Orban has effectively nationalized $13 billion of private pension-fund assets, levied extraordinary industry taxes to raise revenue for the budget, including Europe’s highest bank tax, and forced 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 at Standard and Poor’s, Fitch Ratings and Moody’s Investors Service.

To contact the reporter on this story: Zoltan Simon in Budapest at zsimon@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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