IMF to Start Hungary Aid Talks After Central Bank Amendment

The International Monetary Fund is ready to start talks with Hungary on an aid package as soon as legislators approve proposed changes to a disputed central bank law, Managing Director Christine Lagarde said.

“The proposed amendments and commitments address our key concerns,” Lagarde said in a June 25 letter to the Hungarian government and central bank, distributed to reporters in Budapest today. “Once the proposed amendments are adopted, the Fund will be ready to enter into negotiations on a joint IMF/EU program together with our European partners.”

Prime Minister Viktor Orban is seeking to start official negotiations on an IMF-led credit line following the breakdown of preliminary talks in December after Hungary passed a central bank law that the lender and the European Union said may curb monetary-policy independence. Orban requested the aid in November as the country’s credit grade was cut to junk and the forint fell to a record low against the euro.

The forint, which fell as much as 0.8 percent today against the euro, pared its loss to 0.2 percent and traded at 286.66 per euro by 5:09 p.m. in Budapest. It has gained 9.9 percent against the euro this year, the best performance in the world behind the Colombian peso.

The benchmark three-year government bond advanced, cutting yields 1 basis point, or 0.01 percentage point, to 7.773 percent. The yield rose as high as 7.81 percent earlier today.

Law Changes

The government submitted amendments to the law on June 21. The proposed changes affect the handling of information on foreign-currency reserves, the powers of the rate-setting Monetary Council, the number of policy makers, the dismissal of MPC members and the governor of the central bank, according to the amendments.

Orban also pledged not to enlarge the rate-setting Monetary Council and to refrain from naming a third vice president to the Magyar Nemzeti Bank before the end of President Andras Simor’s term in March.

Lawmakers will vote on the amendments by July 12, opening the way for aid talks from the middle of next month, Mihaly Varga, Hungary’s chief negotiator for an aid deal, told reporters in Budapest today. The government is waiting for the opinion of the European Central Bank before approving the amendments, Varga said.

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