Hungary hardened its position in International Monetary Fund talks, which have been ongoing for 11 months, saying it would rather keep special taxes on lenders and selected industries than have an aid deal if the country was given an ultimatum.
“I can see one scenario which would threaten an IMF deal and that’s if we were expected to increase the burden on families instead of the bank tax,” HirTV reported yesterday, citing Antal Rogan, the ruling party’s parliamentary leader.
Hungary, the eastern European Union’s most-indebted member, requested aid in November as its credit rating was cut to junk. Negotiations for about a 15 billion-euro ($19.2 billion) loan were delayed multiple times because of Prime Minister Viktor Orban’s resistance to adhere to legal and economic conditions set by the Washington-based lender and the EU.
The Cabinet has resorted to a special tax on banks, energy, retail and telecommunication companies to plug budget holes, which along with the nationalization of private-pension funds damaged investor confidence, cut investments and helped push the economy into its second recession in four years.
Investor faith in the government’s commitment to reach an IMF deal has helped the forint recover this year after dropping 15 percent against the euro in the second-half of last year, the most in the world. The forint rose 10.4 percent this year, making it the best-performing currency in the world.
Hungary “can’t do without a bank tax and a levy on a group of multinational companies” because of its high debt level, which raises debt-servicing costs, Rogan said, according to the video of the interview posted on HirTV’s website.
“We don’t have to agree immediately but we should agree relatively quickly just so we can concentrate on more important things,” Rogan said of an IMF deal, adding that the government wants a “rational agreement.”
Hungary needs to move away from “ad hoc” taxes to plug budget holes 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 holding what it called a week of “constructive” talks in Budapest.
Hungary will probably resume IMF talks in the second half of October and may be able to reach an agreement on an aid deal in November, Magyar Nemzet reported on Sept. 22, citing chief aid negotiator Mihaly Varga.
Rogan said he will announce on Oct. 1 the government’s proposals to help reduce the budget gap, proposals the Cabinet sent to the IMF earlier this month.
Investors predict delays to an IMF deal unless market sentiment deteriorates and the forint drops, pressuring the government to reach an agreement.
“The Hungarian authorities are highly unlikely to walk away from the negotiating table,” Morgan Stanley said in an e-mailed report yesterday. “If market conditions are good, they may just choose to let discussions drag on indefinitely without any real progress.”