Hungary: PM Orban wants changes in IMF credit terms

Hungary needs and will obtain a credit line from the IMF even as the government opposes the conditions currently demanded for the aid, Hungarian PM (1 1234,2 CZK, 0,13%) Viktor Orban said on Friday. This new statement comes after on Thursday Orban, using his Facebook (18,98 USD, 0,11%) page, stated that he will reject the IMF’s conditions for lending as they are against the country’s interests. Orban said on Friday he will present a new set of terms to the IMF in upcoming aid talks.

As reaffirmed on Friday, the Thursday’s statement by Hungarian PM that the government will reject the conditions of the IMF programme was unlikely to mark an end to the long-running negotiations with the IMF, but was more likely an announcement motivated politically. It was only Wednesday, when Orban was cited as saying he expected a deal with the IMF to be concluded in the autumn. Hungary's request for a loan of EUR 15 billion was delayed multiple times because of Orban's resistance to meet the conditions set by the IMF. Negotiations formally started again in July, after the 8-month delay, after the government compromised on a central-bank law that ECB said undermined monetary-policy independence.

Importantly, although Hungary's negotiations with the IMF will be continued, the Orban’s statement again confirms agreeing a deal with the IMF will be very difficult. It seems most likely that it will be the renewed financial market turbulences that could ultimately force the government to agree to IMF conditions. Orban is scheduled to address Parliament’s opening session today where he will present the government’s stance on the IMF talks. He said that the government will come up with a new negotiating position by the end of this week.

The Hungarian forint fell by ca. 1.5% against the euro on the Orban’s late Thursday’s announcement, but this negative effect was largely offset by globally improved market sentiment after the ECB meeting. As a result the forint quickly pared losses and strengthened further on Friday supported by new PM Orban’s comments, at the end of the day returning to levels seen on Thursday, before the first PM’s statement was made.