Hungary's prime minister signalled on Thursday he would not renew a safety net with the IMF and would row back on a commitment to cut the budget deficit to European Union-prescribed levels next year. In the latest of a series of comments that have confounded markets, Viktor Orban said Hungary would meet this year's budget target under the International Monetary Fund-backed deal but the IMF safety net would end in October and the matter of negotiating a new one was "insignificant".
He told a news conference that Budapest would now seek to renegotiate an agreement to cut its shortfall below 3 percent of annual economic output, originally planned for next year. Analysts said Orban's statements could indicate a delay in reaching the 3 percent budget gap level, as some European Union members are not expected to achieve that until at least 2014.
The EU and IMF suspended talks over the 20 billion euro bailout package on Saturday after Orban's centre-right Fidesz cabinet refused to abandon a big tax on bank profits that the Fund says will squeeze lending and hit growth. Under Hungary's convergence plan submitted to the EU, it agreed to cut its budget deficit to 3 percent by 2011 from a target of 3.8 percent this year. "The important question is an agreement with the EU, everything else is secondary or insignificant," Orban said.
Analysts believe it is unlikely that the EU will negotiate any new aid for Hungary without the IMF. Orban said: "We will have a single demand, namely that of equal treatment, that is, the same time frame must be set for all to meet the EU's expectation.
"If we agree with the EU and it becomes clear that it will be easier for us than other states to achieve the 3 percent deficit, that will strengthen Hungary's credibility in markets to an extent that will make debt financing easier."
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