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Credit line talks interrupted

December 19th, 2011

While newspaper columnists agree that the latest clash between Hungary and the IMF/EU delegation came at the worst possible moment, a leading conservative analyst suggests that it was only a first round of talks, and expects the delegations to return.

The IMF and European Commission delegations left Hungary early, before the preparatory talks on a credit line were due to end on Friday. The IMF mission chief for Hungary, Christoph Rosenberg, and representatives of the European Commission were in Budapest from December 13 to 16 for preliminary talks with the authorities, and to seek information on recent budgetary developments. European Union Economic and Monetary Affairs Commissioner Olli Rehn interrupted informal talks with the Hungarian government as the Commission did not receive assurances about the government’s plans regarding its new central bank law.

This clash with Hungary’s present and future creditors came at the worst moment possible as the Forint has been having a hard time for the last three months, and there is an air of recession in Europe – writes Csaba Szajlai in Magyar Hírlap.

The columnist remarks that it is the EU, rather than the IMF who is playing hard to get: it was Commissioner Oli Rehn’s personal decision to interrupt the talks.

“It was a tactical mistake from the government side, to introduce the bill on the Central Bank during the IMF-EU talks”, writes Csaba Szajlai, although he argues that the new law will not actually impair the independence of Hungary’s issuing bank. But at the same time another bill was also tabled, allowing for the merger of the National Bank and the Financial Supervisory Authority. “The argument has been made that this is just a theoretical possibility and no one actually wants to merge the two institutions. But then why all the fuss?”, Szajlai asks.

He also remarks that the Hungarian side seriously misjudged the international reception of its legal and financial reforms. “But since it is Hungary that is asking for money and big money at that, it will hardly be possible to by-pass the creditors’ expectations”, the right-wing commentator warns, adding that without the IMF credit line, the spring of 2012 might turn out to be risky, as the country will have to begin refinancing huge chunks of debt left by the previous government.

On its OpEd page, Népszabadság devotes three commentaries to the interruption of the talks. In a separate comment, G. Gábor Varga criticises Fidesz floor leader János Lázár for cracking jokes about the abrupt departure of the two delegations. Mr Lázár said it was acceptable for someone to leave at this time of year and “await Santa at home.”

Varga believes that was an irresponsible reaction, at a moment when the country is much more vulnerable than in the summer of 2010 when an IMF delegation also left early (See Budapost, November 17).

The left-wing analyst also condemns another aspect of Lázár’s statement. The Fidesz floor leader predicted that the IMF would come back, because Hungary owes it a considerable sum. “I haven’t got the slightest doubt that they will be back, to collect their money,” said the politician. Although Varga assumes that these words were meant to be a joke, he believes that even waving the prospect of insolvency in the air might seriously undermine confidence in Hungary, as a country which has always conscientiously paid back its debts.

This is not a financial apocalypse, but the news is distressing – writes Ferenc Kumin in his blog. The leading analyst at Századvég (an influential conservative think tank) is convinced however that this was only the first round of talks between Hungary and the IMF-EU, where the priority was to mark out positions and to even display a show of force.

Ferenc Kumin thinks that the Hungarian government wanted to reach agreement on as many issues as possible, while at the same time trying to skate over those areas where there might be possible conflicts of interest. The central bank law proved to be too much for the IMF-EU delegation, however, and their reaction also serves as a warning sign for the Hungarian government regarding future conflicts.

Hungary’s leading financial news site, portfolio.hu clearly disagrees with Ferenc Kumin’s point of view. “The government and the IMF see things so utterly differently that one needs a really wild imagination to detect an agreement on the horizon”, writes analyst István Madár. In his view, while PM Viktor Orbán thinks the IMF is a bank from which he can demand credit, on the other hand the IMF will be willing to lend money to an unreliable business partner only if it can scrutinize the borrower’s house from basement to attic. He refrains from approving either of the two approaches, but remarks that “in the midst of the Euro-zone crisis, and given the  outworn credibility of Hungary’s economic policy, the perception of the IMF as the lender of last resort is not far from reality.”

István Madár believes Hungary’s bargaining position is not too strong, for it decided to apply for a credit line as government security yields mounted and the Forint exchange rate deteriorated rapidly. His only question is whether the government will make a correct appraisal of “how far it can go along with emphasising its ’unorthodox’ economic policy and quintessential national sovereignty.”

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