EU/IMF deal now not likely before Q3

Initiatives

Hungary is now not likely to strike a deal with the EU and the IMF on a new financing package before the third quarter, London-based emerging markets economists said on Wednesday.

In an update released to investors in London, analysts at Barclays Capital said that even meeting the preconditions to start formal talks will "represent only the first stage". "We expect actual program negotiations to be difficult and protracted ... We anticipate several missions over several months will be required to resolve the differences".

Thus, at this point, "program implementation is pushed out until Q3 (of 2012) at best, in our view".

As discussions "drag on", Hungarian assets remain vulnerable to corrections. "We see €/HUF in a likely 290-305 range over the next months", Barclays Capital's London-based economists said.

In a separate note released Wednesday in London, Timothy Ash, head of global emerging markets research at Royal Bank of Scotland said that "arguably the forint at current levels is not at a level that the government thinks that it has to cut a deal with the EU/IMF at all costs - it still thinks that it has wiggle room to negotiate a little more with the European Commission, prior to getting agreement to begin talks on a formal IMF program".

However, "investors surely will be asking in Hungary's case why is it taking months to close a deal ... (because) a country that actually wants an IMF deal can get one in a matter of a few weeks", Ash added.

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