Hungary “faces a series of interconnected challenges related to high public and external indebtedness, strained bank balance sheets, weak confidence, and elevated risk perceptions,” the Washington-based IMF said yesterday in an e- mailed statement. “The key near-term challenge is to maintain macroeconomic and financial stability.”
Hungary resumed negotiations with the IMF and the European Union last week after an eight-month delay as it seeks about 15 billion euros ($18.2 billion) in aid. A plan to extend a financial transaction tax, which the European Central Bank has criticized, to central bank operations is an issue of contention.
Hungary may be ready to alter the tax if requested by the EU, Mihaly Varga, the government’s chief negotiator in the talks, told Budapest-based HirTV yesterday in an interview. The government will first assess objections from the ECB, he said.
The forint strengthened 1.7 percent against the euro to 283.82 by 7:50 p.m. in Budapest. After plunging 15 percent in the second half of last year, the most in the world, the currency has gained 11 percent in 2012 as investors bet Hungary will obtain an IMF loan.
Weaken ‘Suspicions’
The first round of talks with the IMF and EU served to weaken the lenders’ “suspicions” about Hungary’s economic- policy track record and increased the chance of a deal, Varga said.
Still, “generating higher and more inclusive growth will require more emphasis on structural reforms,” according to the IMF, which said talks will continue.
The government’s economic policy should avoid “ad hoc charges on various sectors of the economy, including the central bank,” the European Commission said in an e-mailed statement.
An IMF loan may help reduce financing costs, Prime Minister Viktor Orban told entrepreneurs yesterday in Budapest. On the other hand, the government must consider what the lender may ask in return and whether the costs outweigh the benefits, he said.
The two sides will discuss the potential size and type of a credit line when talks resume from September, before concluding a deal “by the end of the autumn,” Varga said.
‘Impairs’ Independence
The extension of the transaction tax to include the central bank “impairs” the Magyar Nemzeti Bank’s independence, the ECB said this week in a legal opinion. The levy, which the government expects to introduce in 2013, is projected to cost the banking industry 123 billion forint ($518 million) annually.
The banking industry turned unprofitable for the first time in 13 years in 2011 after Orban forced domestic lenders to swallow losses on Swiss franc mortgages and levied a special tax on commercial banks.
“There was a difference of opinion regarding the transaction tax -- the IMF and EU both put forward an opinion that’s close to the ECB’s stance,” Varga told MR1 radio yesterday in an interview.
Aside from the tax, differences remain between the Cabinet and the lenders over next year’s budget and macroeconomic outlook, while the IMF and EU have called for the number of public employees to be cut, Varga said.
Gross domestic product will expand 0.1 percent this year, Varga said June 13. It will then grow 1.6 percent in 2013, according to estimates approved this month by Parliament. The IMF forecasts output will contract in 2012 and then “recover modestly” next year.
The Cabinet is ready to take further measures to make revenue and spending plans more “well-founded”, Varga told HirTV.
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