Talks with IMF to start within days, $4-5bn would be sufficient, PM says

Interview

Talks with the International Monetary Fund will start about a discretionary credit line within the next few days, Prime Minister Viktor Orban told the French economic daily Les Echos in an online interview published on Thursday.

The prime minister said "$4-5bn would be sufficient" because Hungary is able to finance itself from the markets. This was also the case in 2010 when it closed its relations with the IMF.

Mr Orban attributed the weakening of the forint to the fact that European banks facing difficulties are withdrawing funding from Hungary. This narrowing of financing has an impact on the whole economy.

The slowdown of the economy is also a result of slower growth in Germany, he said. As a consequence, the 2012 growth projections will most probably need to be cut sharply below the 1.5% projected in September, Mr Orban said. Economy Minister Gyorgy Matolcsy said Wednesday the government now puts GDP growth between 0.5% and 1% next year.

Informal talks with IMF mission chief for Hungary, Christoph Rosenberg and European Commission (EC) representatives will be held between December 13–16 in Budapest according to a late Thursday statement by IMF representative to Hungary Iryna Ivaschenko. Official negotiations will start next year according to the statement.

Mr Orban said Hungary is able to restore fiscal balance as it did during his first government’s term in office between 1998-2002. This, the prime minister added, will require distribution of the burdens among three parties - households, the state and companies.

However, the IMF does not share the above view, Mr Orban said, noting that the IMF, banks, companies and credit-rating institutions have criticised his government’s steps that ask large credit institutions and corporate groups to contribute to the improvement of general government finances.

Mr Orban said it has been a priority for the government to keep the deficit under 2.8% of the GDP. "We have taken all of our decisions, including the most contested ones, in order to avoid overstepping this limit," the prime minister pointed out.

The prime minister said that if the projections showing a slowdown in the economy prove correct, the state bureaucracy will have to be cut back, which would result in lay-offs in the public sector. More than 10,000 public-sector jobs have been lost this year out of a total 700,000, however, 200,000 public-financed jobs will be created next year, the prime minister said.

In connection with the early final repayment scheme, the prime minister admitted that this is a measure that "the banks do not like," and would instead like to share the burden with the state. The government does not exclude this possibility, but in exchange it is asking the banks to boost their financing of the Hungarian economy.

"If we manage to reach strategic, long-term agreement on these issues (with the banks), the state will take its share of the responsibility. Otherwise, the state will apply its own ideas," Mr Orban said.

He termed the excessive exposure of Hungary’s mortgage-loan market to foreign currencies a "historic error", which the government is working to correct.

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