Hungary v IMF: another row

„The IMF/EU aren’t too unhappy about Hungary’s short-term macro-economic outlook, with the government running a fiscal surplus this year and cutting its public debt despite a slowing economy, which could fall into recession in 2012. But the country, with public sector debt/GDP ratio of nearly 80 per cent is vulnerable to shocks of the kind now buffeting Europe. With households heavily exposed to foreign exchange mortgages, the forint’s depreciation is one obvious Achilles’ Heel.

Moreover, the IMF and the EU – especially the EU – are very concerned about elements of Orban’s policies, including a law that forced banks to absorb some of their clients’ foreign exchange losses this year and a move that took private pensions back into public control.  On top of this comes the latest assault on the central bank.

After the bust-up,  feelers were put out by both sides. Fellegi said in a statement that Hungary  would »incorporate the proposals of the European Central Bank« into a new central bank law currently before parliament, and that the country was »ready for talks without preconditions,« with the two institutions. The IMF said it was in touch with Budapest about »the next steps«.

The forint, which had firmed slightly from Ft 301 to the euro towards the Ft 300 level, lost ground as news of the breakdown in talks spread around lunchtime, and was trading around Ft 305.20 later.

It will be a lot lower if there’s another day like today.”