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Hungarian report Hungarian report
by Euro Reporter
2012-03-22 07:42:35
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Hungary remains far from inking a credit deal with the IMF/EU - Lubin

The main benefit of a credit deal with the IMF/EU for Hungary would absolutely be the reduction in the risk premium, but an agreement is still a long way away, David Lubin, Managing Director, Emerging Markets Economics at Citigroup, told Portfolio.hu in a video interview recorded at Portfolio.hu’s economic conference earlier this month. He said it would be "very damaging" for Hungarian asset prices if the market had the idea that the cabinet considers not securing a credit line with the IMF/EU.

Lubin said the high risk premium is the central restraint for Hungary to regain access to international capital markets and also on the central bank’s (NBH) ability to lower interest rates.  He also believes it would be a mistake to manage this year’s public financing by tapping the bank’s foreign currency reserves, because that move would be interpreted by international financial markets as a sign of larger vulnerability.

Lubin believes Hungary is still far from striking a deal with the lenders and that when it comes to choosing between market-based debt financing and drawing on an IMF/EU credit line, there are more factors to consider than the effective interest rates.  In his view, the central problem of the Hungarian economy is the absence of a strong potential growth rate and also its unique vulnerability to an external shock. What the government needs to do is find a way of trying to inject some confidence into the prospects of domestic spending. That means reengaging with the financial sector and trying to limit the deleveraging process and also improving the investment climate, he concluded.


Hungary works to start talks for precautionary loans

Hungary's government is working to resolve disputes with the European Union, and is trying to hasten the start of precautionary-loan negotiations with the EU and the International Monetary Fund, according to the country's foreign minister. "Our intention and aim is to start these talks in the shortest possible time," Janos Martonyi said Thursday in an interview with The Wall Street Journal. "The Hungarian government is focused on starting the negotiations. There is no plan B or plan C." Mr. Martonyi's remarks, and similar comments Thursday by other Hungarian officials, including Prime Minister Viktor Orban, appeared aimed at countering mounting doubts among some investors and analysts about the country's commitment to reaching a deal with the two groups.

As progress toward a deal has stalled, some have questioned Hungary's willingness to compromise and expressed scepticism about Mr. Orban's continued desire to do a deal as some of the financial pressure on Hungary has eased amid a general improvement in risk appetite. The indebted country in November said it would seek a financial safety net from the EU and IMF to help protect it from market turmoil and to keep government borrowing costs at manageable levels. Hungary is seeking precautionary credit, meaning it doesn't intend to draw on the funds. Since then, however, there has been little forward momentum.

The main stumbling block is a new Hungarian central-bank law that the EU and IMF say threatens the independence of the National Bank of Hungary. The EU has questioned limits on the bank governor's salary and has sought changes to bank officers' oath of office. Hungary has pledged to change the law to address EU and IMF concerns. On Thursday, the IMF's resident representative in Hungary, Iryna Ivaschenko, said: "Before the IMF determines whether and when to start formal negotiations, it will need to see tangible steps that show that the Hungarian government's strong commitment to engage in all policy issues that are relevant for macroeconomic stability." Her comments were in line with those of the EU on Wednesday, when the regional bloc said that Hungary must take concrete steps to carry out its pledges, and change the law before any discussions can start.


Far right group ‘defied ban’ to re-form

About a hundred new members of a Hungarian far-right group have been sworn in at a very public ceremony in Budapest. They would have broken the law if they had stood in formation, so the new uniformed recruits sat down or knelt to make silent oaths. The Hungarian National Guard grew out of the Hungarian Guard, an offshoot of the nationalist Jobbik party.

Founded in 2007, the Guard was disbanded two years later by a court order, amid concerns about its attitude to minorities. A small group of demonstrators believe the same extremists are donning new clothes to get round the law.

“Today they are here again to inaugurate new members of the Guard, but they are banned. We are here to demonstrate against them, because to be Hungarian cannot be equated with fascist ideology,” said Peter Daniel, one of the protesters. A Budapest-based think-tank set up to combat extremism in Europe describes the new National Guard as a splinter group, saying its significance cannot be compared to that of its predecessor – and the police have it under close surveillance.

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