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Buying time from the IMF?

November 24th, 2011

Analysts usually sharply critical of the government’s economic policies suspect that the Hungarian government has no real intention of cooperating with the IMF, but wants to buy time to calm the markets instead. One liberal commentator does not exclude the eventual collapse of the Forint as a result of an American attempt to topple Orbán’s government.

On Monday the government specified that it had turned to the IMF (see BudaPost November 21)  in order to seek a PCL (Precautionary Credit Line) of around 4 billion Euros. PM Viktor Orbán said that the Hungarian government would not accept any conditions from the IMF.

Those who had been worrying because of the possible downgrading of Hungarian sovereign debt were relieved by the announcement that the government is turning to the IMF in order to seek a new type of cooperation. The Forint has gained 3 percent, the benchmark on bonds have decreased by 40-50 points. … But it is much too early for optimism,” Csaba Gaál writes in Világgazdaság.

He thinks that the government will have to pay a high political price for the U-turn, and abandon its harsh anti-IMF rhetoric. This will weaken its support and will make future structural reforms and austerity measures harder to introduce.

Moreover, it is not at all clear whether the Hungarian government really wants to cooperate with the IMF, Gaál suspects. He finds PM Orbán’s statement about accepting no conditions from the IMF highly illusory. If, however, Orbán was serious when he  stated that no strings should be attached to the IMF agreement, this may imply that he only wants to buy time and use the negotiations to calm the markets, without real commitment to an agreement.

“How much time can such a strategy buy? Judging by the example of Turkey, quite a lot. But we are in a different situation, as the crisis in Europe is deepening. … Going down this path can mean that the government will soon lose not only the support of its voters, but also that of the markets.”

The IMF story has discouraged those who speculated against the Forint, but has not yet convinced the markets and the credit rating agencies,” warns Tibor M. Kovács in Hírszerző.

M. Kovács also fears that Orbán only wants to buy time instead of abandoning the unsuccessful strategy he has pursued so far, and to further increase state intervention in the economy, exemplified by the recent buying-up of the Rába automotive company (see BudaPost November 10).

“Orbán must be confident that the Euro zone will collapse or at least will be fragile for a long time, and that there will be very serious problems in the world, which will divert attention from Hungary. This would mean that the EU cannot force anything on us,” M. Kovács speculates, and believes there is no guarantee that the IMF will provide help for Hungary. If the US wants Orbán to fall, the IMF can reject a loan or attach too harsh conditions, which the government cannot accept. “The markets will understand, and will kill the Forint. This could lead to the end of the Orbán government.”

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