By Dalibor Rohac of the Cato Institute
In the weeks leading to the Annual Meetings of the International Monetary Fund (IMF) and the World Bank last weekend, Christine Lagarde, the managing director of the Fund, has been making a lot of headlines. She announced that the IMF would push for more gender equality in labour markets around the world, suggested that the IMF could help protect the planet from environmental damage by promoting reforms of energy subsidies, and urged European countries to move towards a fiscal union in order to help eurozone limit the severity of future financial crises.
That is a lot of ground to cover. While each of these proposals should be discussed on its own merit, jointly they are symptomatic of the spectacular mission creep that characterises the past 40 years of the organisation’s existence. Read more
Wishes come true
Has campaigning already begun for Hungary’s elections in April next year?
News on Monday that the government is to repay in advance the remaining €2.2bn it owes to the IMF from its 2008 loan looks suspiciously like a political rather than an economical move. Read more
After months of speculation Hungary is at last preparing to issue its first sovereign foreign currency bond in nearly two years, setting aside any chance that Budapest will pursue support from the International Monetary Fund any time soon.
The government, it seems, will grab the chance to stuff its coffers before campaigning begins for next year’s election, unfettered by budgetary constraints that might otherwise have been imposed by the European Union or the IMF. Read more
By Gábor Takács of Nézőpont Intézet
Lifting the EU excessive deficit procedure (EDP) against Hungary was one of the major topics discussed at the meeting between Viktor Orbán, the Hungarian prime minister, and José Manuel Barroso, European Commission president, last week.
Orbán’s critics were quick to argue that by lifting the EDP, Brussels would give up the only effective method to exert pressure on the “unorthodox” leader from Budapest. Read more
The Hungarian forint is under increasing pressure on Monday – shedding around 0.25 per cent against the euro to Ft 296.50 after depreciating last week. As website Index playfully put it, “[Economy Minister] Matolcsy has nailed why the forint’s been weakening” – it’s all down to foreign speculators. Or rather, one speculator in particular: Nouriel Roubini (pictured on the chart). Read more
Another dose of bad news for Hungary on Tuesday as industrial production figures for November showed a much sharper contraction than expected. Output fell by 6.9 per cent year on year, much worse than the consensus 3.5 per cent contraction.
It leaves the country facing a deepening recession just as the government has thrown caution to the wind and decided it can do without the support of an IMF loan. The chances of an adequate response seem limited given the changes about to take place at the top of the central bank. Read more
Hungary’s plan to return to the international bond market without a long-awaited IMF deal in place was predictable, even coming on the back of a further downgrade by Standard & Poor’s last week. But the plan is seemingly contrary to the policy of Hungary’s debt management agency, fraught with risk and might very well not happen, market analysts told beyondbrics. Read more
Another shudder on the Budapest Stock Exchange on Monday, after the government announced tax plans that will make it harder to agree a loan facility with the International Monetary Fund and the EU.
More surprising than the planned changes, though, is that investors paid them any attention. Few people still believe Hungary is serious about reaching agreement with the IMF and the EU. Indeed, after the initial reaction on Monday morning, stock prices soon went back to where they were before. Read more
Hungary, in case you didn’t know, is doing ok. At least according to Viktor Orban, the prime minister who, fresh from a meeting with Angela Merkel in Berlin, told the Magyar Nation in his regular Friday radio broadcast last week that the country is “more serious and in a stronger condition than it was at the time of the previous agreement [with the International Monetary fund],” and it therefore plans to strike “a good deal with that organisation.” Read more
News that Hungary would drop plans to levy its financial transaction tax on transactions with the central bank – removing a major obstacle in negotiations with the EU and IMF over a new credit facility – boosted the forint on Friday morning.
The Hungarian currency gained nearly 1 per cent to trade around Ft282 to the euro at around 10.00 local time, after opening the day at Ft284.8. Read more
On the move again
Does Hungary want a deal with the IMF or not? Based on the latest evidence, the answer is: Maybe, but not at the IMF’s price.
In a television interview on Friday morning, a spokesman said the government hadn’t given up on levying a financial transaction tax on the central bank – in breach of an IMF condition for a loan – and that it wouldn’t base any deal on austerity measures that didn’t promote growth. Budapest, it seems, is sorely tempted to go it alone. Read more
Viktor Orbán, the fiery Magyar prime minister, opened parliament on Monday describing Hungary as “stronger, with more room for action” than in 2008, when the country last turned to the International Monetary Fund for a bail out.
But dismal inflation figures released on Tuesday showed that consumer prices rose by 6 per cent in the year to August, the highest rate in the European Union. Read more
A “list of horrors”.
That’s how Hungary’s prime minister Viktor Orbán described on Thursday the conditions given by the IMF / EU for a deal, via a video on his Facebook page.
It’s just the latest twist in the long-running credit line saga, and comes one day after Orbán and his right-hand finance man Mihály Varga had talked confidently about reaching a deal “this autumn”. Read more
“If you cannot bring good news, then don’t bring any,” so sings Bob Dylan in his song “Wicked Messenger”: it seems the European Union – International Monetary Fund (EU-IMF) negotiating team take a similar line when it comes to negotiations with Hungary about a new credit facility.
The team left Hungary on Wednesday amid a an ominous storm of silence – no press conference or communique – after a week of preliminary talks with the government and a wide variety of partners, including the central bank. Read more
“Nonsensical and illegal.” That’s how András Simor, governor of Hungary’s central bank (pictured), described last week’s decision to extend a new financial transactions tax to include operations carried out by the central bank itself.
The move is likely to stir similar feelings at the IMF and the EU. Officials only recently agreed to open talks on a support package after Budapest reluctantly rolled back other attacks on the central bank’s independence – and then only temporarily. Will they find it as easy to ignore Budapest’s latest snub? Read more
In Hungarian, to “drag one’s feet” is “nyújtja mint a rétestésztát”, meaning to roll out the dough for top quality strudel, making it very long and thin. A time-consuming process.
If the current Hungarian government of Viktor Orbán ever entered an international strudel-making competition, it would surely win gold, judging by the time it is taking to meet the conditions set by the EU and International Monetary Fund for a new line of credit, needed to reduce borrowing costs and bolster market confidence after Hungary was downgraded to junk status last November. Read more