BUDAPEST—European Union and International Monetary Fund officials broke off preliminary talks with Hungary over new financial backing because of fears the government is trying to limit central bank independence and lock in fiscal policies before any loan agreement can be negotiated, people familiar with the situation said.
Heavily indebted Hungary—under threat from rising borrowing costs and a sharply depreciating currency as global markets shudder—said last month it would seek cooperation with the IMF and EU for a "safety net" that would reassure investors about the country's stability and credit-worthiness.
EU monetary-affairs spokesman Amadeu Altafaj-Tardio said Friday the EU, along with the IMF, "decided to interrupt the preparatory mission" in Hungary because of concern about "the intention of the Hungarian authorities to push forward with the adoption of laws that can potentially undermine the independence of the central bank."
The IMF issued a similar statement, adding that central bank independence "is one of the cornerstones of sound economic management." The fund said it would stay in touch with Hungarian authorities "to determine the next steps." Hungary's currency, the forint, fell 1.4% against the euro after the comments, before regaining ground—to 0.78% lower in late trading.
In a statement, Hungary's chief representative at the talks, Tamas Fellegi, said "this in no way means the interruption of the official negotiating process," emphasizing that this week's talks were informal consultations. He added that Hungary remains ready to begin formal talks in January without preconditions.
It isn't clear how the latest events will affect Hungary's stance on joining the proposed EU fiscal pact agreed to at last week's summit. Hungary's Parliament is to discuss whether the country should sign on. Officials say they are awaiting details of the agreement. Hungary supports measures to enforce budget discipline, but it doesn't think taxes should be harmonized across the EU.
The Parliament this week speeded up consideration of legislation to change the management structure of the central bank and the makeup of its interest-rate setting committee. The National Bank of Hungary and the European Central Bank have criticized the law as a possible threat to the central bank's freedom. Lawmakers in Hungary also are weighing a so-called financial-stability law that would cement tax and debt policies—and require a two-thirds majority of the legislature to agree to future changes. If the law passes, it would limit the government's flexibility to negotiate budgetary requirements for any loan package. The new legislation, for example, mandates a flat tax on incomes, rather than any progressive rate.
In their public statements, Hungarian Prime Minister Viktor Orban and his aides have stressed they want a precautionary agreement with the IMF and EU. Because they don't intend to draw on any credit line, they have said, they expect the strings attached to the money to be limited.
On Friday morning, Mr. Orban said in a radio interview that once formal talks begin, "the government doesn't wish to discuss its economic policies with the IMF." He said the talks were, in effect, "Hungary negotiating with its own bank," since it is a member of the IMF.
Market analysts have said the more conditions attached to any IMF and EU loan package, the more reassuring it is likely to be to investors, who have been skeptical about some of Hungary's unorthodox policy decisions in the past, such as a move last year to bring privately managed pension funds back into state coffers.
Hungarian officials have said they are seeking a precautionary liquidity line, a type of arrangement that the IMF extends to countries that it considers to be in strong fiscal shape and pursuing prudent policies. The IMF won't comment on its position.
In an interview Friday, Zoltan Csefalvay, a state secretary in the Economy Ministry, expressed openness to other types of deal. "We'll see what the IMF offers," Mr. Csefalvay said.
He stressed that Hungary is in much better shape than it was in 2008, when it became the first European country to be bailed out by the EU and IMF when global credit markets froze after the collapse of U.S. investment bank Lehman Brothers.
Mr. Csefalvay said Hungary's economy expanded in 2011, its budget deficit is below 3% of gross domestic product as required by the EU, and its current account—a measure of international trade and payment flows—is in surplus.
—Veronika Gulyas and Gergo Racz contributed to this article.
central bank independence, Hungary, Hungarian authorities, central bank, Hungarian Prime Minister Viktor Orban, BUDAPEST—European Union
No comments:
Post a Comment