Hungary, IMF/EU still disagree on some issues: reports

Hungary and its international lenders have not yet resolved differences over some important issues in talks which are expected to be finished by early next week, local media reports said.

News portal Index.hu said late on Friday, citing unnamed sources, that Hungary needs to come up with a plan on how to meet its deficit targets this year and in 2011 as the International Monetary Fund and the EU have made it clear there was no room for budget loosening.

National news agency MTI said on Saturday, citing unnamed government politicians, that there was disagreement over two issues between the government and the IMF and EU delegation -- a plan to introduce a tax on banks and another proposal which would cut the central bank governor's salary.

MTI said the government and lenders may publish their stance on the ongoing negotiations this weekend.

Hungary -- which resorted to an IMF/EU bailout in 2008 -- needs to retain the trust of investors and for this it needs the lenders' safety net as its high public debt at 80 percent of GDP and b reliance on foreign financing make it vulnerable.

The country wants to extend its current financing deal with lenders until the end of 2010 and seek a precautionary deal for 2011 and 2012.

The talks about a review of Hungary's performance and the cabinet's economic and budget plans were expected to be completed by early next week.

Index said, citing unnamed sources, that the center-right government wanted to gain backing from the IMF and EU for loosening this year's budget deficit target of 3.8 percent of GDP, to around 4.5 percent.

Another sticking point is the budget for next year, when Hungary needs to bring the deficit below 3 percent of GDP under the Excessive Deficit Procedure (EDP).

Index said the cabinet now needs to draft a plan "B" to ensure the budget remains on track, which means a fiscal adjustment of around 100 billion forints focusing on spending cuts could come this year.

MTI however said, citing unnamed government politicians that the government was not preparing a new spending cut package.

Failure to come to agreement with the IMF and the EU would put Hungary's markets under pressure and push up its financing costs even though the country does not need IMF money at the moment as it is financing itself from the market, analysts said.

[Source: Reuters, Budapest, 17Jul10]

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