Hungarian gov’t vows fast loan argeement
BUDAPEST - Reuters
![Hungarian gov’t vows fast loan argeement](http://image.hurimg.com/i/hurriyet/75/0x0/59c6b83045d2a027e839824c.jpg)
A dealer speaks on the phone in the trading room of investment house BudaCash in Budapest yesterday. Hungary has pledged to seek a fast deal with international lenders. REUTERS photo
Hungary pledged yesterday to seek a fast agreement with international lenders to shore up its financial markets as the forint currency and bonds plunged further in a deepening crisis due to the government’ widely-criticized policy course.Officials were forced to cut the value of a treasury bill auction and some analysts said the central bank might have to raise interest rates soon to halt the sell-off, an emergency move that would mirror steps it took in 2008.
Hungary sought 20 billion euros from the IMF and European Union in a bailout three years ago, but the new conservative government has only just come back to the table in November after saying in the middle of 2010 that it did not need any new deal.
‘As soon as possible’
Its minister in charge of the talks, Tamas Fellegi, told a news conference yesterday the government now wanted to strike a new funding deal “as soon as possible” and was ready to discuss any proposal made by lenders and accept them if there are in the interest of the country.
“We are ready to negotiate without preconditions, and we are ready to discuss everything at the negotiating table,” he said.
He added that Hungary would accept a precautionary standby agreement (SBA) from the IMF, but would not draw on any funds made available only if market conditions make it necessary.
Since sweeping to power in 2010, Prime Minister Viktor Orban’s Fidesz party has tightened its grip on the media and the top constitutional court, taken over private pension funds and slapped Europe’s biggest tax on banks, prompting a series of international protests.
After the forint’s falls to new record lows versus the euro yesterday and a further jump in credit insurance costs, Fellegi said the government was clear about the seriousness of the situation and a weaker forint was a serious problem with regard to debt developments.
But investors continued to ditch Hungarian assets as they fear the talks with lenders will be very hard given Hungary’s unorthodox policies and its previous hard stance on a range of controversial policies.
The forint briefly firmed to 321.55 after Fellegi’s comments, but remained highly volatile while 5-year and 10-year bond yields fell by about 50 basis points to below 11 percent.
The state debt agency cut its sale of treasury bills by 10 billion forints after bids from investors fell short of the planned 45 billion forints and the yield surged - a sign of the trouble Budapest may face in securing funds in the months ahead.
Hard talks
“On the IMF front, Fellegi’s comments are aimed at providing re-assurance, but I think the market will adopt a seeing is believing approach, given that market trust in this administration is now at rock bottom levels,” Timothy Ash at Royal Bank of Scotland said.
“They will want to see the ink and fine detail on any IMF agreement, and expect the IMF/EC to negotiate hard with the Hungarian side.”
Talks with the IMF and European Union broke down last month over a law curbing the independence of the central bank, but Orban has refused to withdraw the legislation, defying EU demands. Despite recent concessions offered by Hungarian policy makers, many investors fear it will be very hard politically for the prime minister to change his economic and other policies in a significant way, boding ill for negotiations.