UPDATE - PM stresses close cooperation between govt, central bank to restore confidence in forint

The government and the central bank must work together in the closest possible cooperation to strengthen confidence in the forint, Prime Minister Viktor Orban said after a meeting with National Bank of Hungary governor Andras Simor.

Mr Orban said it was agreed that the central bank would consult with the National Economy Ministry on a daily basis in the interest of re-establishing confidence in the forint. The government fully supports the central bank and the central bank governor in the interest of preserving the value of the forint and the stability of the financial system, he added.

The forint weakened to a historical low of 324.27 to the euro on Thursday.

Mr Orban and Mr Simor were joined at the meeting by minister without portfolio in charge of talks with the IMF and EU Tamas Fellegi and state secretary of the Prime Minister’s Office Mihaly Varga.

Mr Orban said the meeting was initiated by Mr Simor.

The prime minister said he asked the central bank to participate in drawing up the government’s plan for economic growth.

Mr Orban said the government was doing everything possible to see talks with the IMF and EU start and are closed as soon as possible. He added that Hungary’s starting position at the talks had already been decided as well as points on which Mr Fellegi could take decisions on his own, without any special consultations with the government.

Mr Orban said Mr Fellegi could conduct preliminary talks in Washington, adding that the IMF’s issue of a mandate to negotiate with Hungary was awaited. He added that Mr Fellegi has scheduled talks with the European Central Bank, but a time has not yet been set to meet with representatives of the EU.

He said he saw a good chance for speedy negotiations, which was important for Hungary. "If the safety net is there, then we can work with all our might to start up growth," he added.

The prime minister said he and Mr Simor agreed that reaching an agreement on financial assistance from the IMF and EU as soon as possible was in the best interest of the economy.

Mr Orban said the government expects an economic policy turnaround in Europe if the debt crisis there can be successfully managed. He added that the coming half year would be more difficult than the previous half year, but if Hungary could couple to the change in Europe, then starting and sustaining economic growth could be the task of European and domestic economic policy.

Mr Orban said the MNB’s forex reserves were not discussed at the meeting because the government considers the central bank’s independence as a starting point. "The right to control the forex reserves managed by the central bank is solely that of the central bank," he said.

Mr Orban said that in order to start growth, the country needed to secure financing that maintains its value, which is why he asked Mr Simor to use those tools used by central banks in the EU, US and UK to support growth to do the same in Hungary. He added that Mr Simor had accepted the task.

He added that the "contested Central Bank Act" explicitly declares the MNB’s independence.

Mr Orban acknowledged that there was "a dispute" over the Central Bank Act that the European Commission and Hungary want to clear up "in the usual way in the European Union". He added that the government had accepted 13 and a half of the ECB’s 15 recommendations on the act.

"That’s a European record and we are still cooperating," Mr Orban said.

Answering a question about the security of bank deposits in the country, Mr Orban said the MNB could do the most for the security of Hungary’s financial system.

"I can’t say anything about people’s money because the government has nothing to do with it. Depositors’ money is depositors’ money, the government doesn’t even deal with that question," he added.

In a statement published on its website, the MNB said the participants at the meeting on Friday "reviewed recent developments in the domestic economy and assessed the current situation".

"They agreed that the Minister for National Economy and the Governor of the MNB would consult continuously with each other and ensure the stability of the Hungarian economy using the instruments available," the bank added.