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Hungarian report Hungarian report
by Euro Reporter
2010-07-25 10:15:25
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Hungarian PM reiterates intention to break with IMF when contract expires

Getting free of the International Monetary Fund (IMF) will be a step towards national self-determination, Hungarian Prime Minister Viktor Orban said. Returning to a theme he raised in Parliament earlier in the week, Orban said that once Hungary's contract with the IMF expired in October, the country would have nothing more to do with that organization. Speaking on the all-news television channel HirTV, he said that the salary of the central bank governor, cut earlier this week by Parliament despite IMF and European Union (EU) warnings that the move violated central bank independence, was none of their business.

The IMF and EU negotiating teams walked out on Hungary a week ago after the government refused to yield to their concerns that imposing a tax on banks would slow growth and prevent the country from attaining short-term sustainability. The IMF and EU had granted Hungary an emergency standby loan of 25 billion dollars in 2008, the last portion of which had been due for transfer to Hungary at this time until frozen by the dispute. Orban again said he was grateful to the IMF and EU for preventing Hungary's financial collapse in 2008. The loan agreement, due to expire in October, contained two specifications, he said -- that the money had to be repaid, and that Hungary's budget deficit would not exceed 3.8 percent of the gross domestic product (GDP) this year. Hungary would meet these conditions, he said, and that would end its ties to the IMF despite suggestions from the latter that it was ready to renew talks if Hungary showed some flexibility.

The EU, he went on, was a different matter entirely, because the EU wanted all members to cut their deficits to below 3 percent of GDP. Hungary is ready to meet that target, he said. "We will bring down the Hungarian budget deficit to below 3 percent," he said. Orban voiced optimism although two international ratings agencies, Moody's and Standard & Poor's had placed Hungary's credit under review for a possible downgrade earlier on Friday, on the heels of Parliament's decision to go against IMF recommendations. Once the economy is growing and is in equilibrium, the market will be quite willing to lend Hungary money, he said, adding that the country was almost there now. "When concluding an agreement with the EU on how we -- and all the other countries -- will bring down our deficit to below 3 percent the Hungarian economy's reputation and market opportunities will improve significantly," he said.


Fund to Hungary: drop dead

Monday may be a good time to pick up Hungarian assets on the cheap. The IMF and the EU walked away from negotiations with the Hungarian government on Saturday after the latter refused to give in to the international organisations’ demands for more clarity on the country’s plans for tax and spending. It seems safe to assume the Hungarian forint will start the week with a sharp lurch downwards.

And in a world where a misspoken word by a formerly obscure town mayor in a provincial city in eastern Hungary can wipe out trillions in global asset values, it is likely the impact of this weekend’s events will make itself felt in emerging markets from Malaysia to Argentina. All parties said talks would resume, but the uncertainty is the last thing Hungary, or any other emerging market needs to see right now.

The EU and the IMF wanted to see a commitment to spending cuts, reforms to ill-run state enterprises like the railways, and a clearer picture of how the government would be raising revenues. One bone of contention was the government’s planned windfall tax on banks and other financial institutions - from which it is hoping to raise some Ft200bn (€700m) a year over the next two years. Assuming it works—and Italy’s Unicredit or Austria’s Erste have plenty of other places to put their money—the international lenders wondered whether a windfall tax was a good basis for sound fiscal policy.


Local elections October 3rd

President László Sólyom named the earliest possible date, 3 October, as the day for the nationwide municipal elections last Thursday. As two settlements have been designated as parishes – Tekenye and Monorudvar – since the last local elections, voting for mayor and local government officials will take place in 3,176 communities across the country.

“Thank you, I will vote as well”, Prime Minister Viktor Orbán responded to an enquiry about the elections. “The date is optimal, as this way we will have more time to debate about the budget”.
According to political analysts polled by state news agency MTI, nominees of the governing Fidesz-KDNP have a chance to win everywhere in the single round ballot. According to Progresszív Institute’s Gábor Filippov, the liberal stronghold of Budapest is very likely to be taken over by Fidesz-KDNP’s nominee István Tarlós. The winner will replace five-time winner Gábor Demszky, who announced earlier that he will not seek re-election in 2010. He has since left the liberal SZDSZ.

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