Hungary’s parliament readies to pass bank tax law

* PM speaks in parliament at 1300 GMT

* 12-month T-bills sold as planned, but yield jumps

By Krisztina Than and Marton Dunai

BUDAPEST, July 22 (BestGrowthStock) – Hungary kept the door open to
talks with international lenders on Thursday even as parliament
prepared to pass steps to tax banks to manage the budget rather
than impose deep, structural spending cuts backed by the IMF.

The EU and IMF suspended a review of Hungary’s 20 billion
euro funding agreement on Saturday after failing to get
sufficient clarity about the new Fidesz government’s future
economic policies. [ID:nLDE66I054]

Centre-right Fidesz appears to be willing to live without an
IMF safety net at least until October when the current deal
expires and when municipal elections are due in which the ruling
party wants to cement its strong powers at a local level.

Imposing tough budget cuts of the sort it campaigned so
strongly against to beat the Socialists in April parliamentary
elections risks alienating voters at the Oct. 3 polls.

Prime Minister Viktor Orban said after meeting German
Chancellor Angela Merkel in Berlin on Wednesday that there was
no point discussing long-term issues with the IMF and that his
government would discuss the 2011 budget only with the EU.

But his spokesman made clear on Thursday the door remained
open to all discussions.

“When it comes to planning next year’s budget we will have
to negotiate with the EU so with everybody in the right time,”
Peter Szijjarto told public television M1.

When asked if this meant the IMF could return to Hungary at
the end of September or early October to negotiate on a new
financing deal, Szijjarto said:

“(Economy Minister) Gyorgy Matolcsy had made it clear over
the weekend that the Hungarian government would of course
continue talks with international organisations including the
IMF, EU and the European Central Bank.”

Markets wasted no time punishing Budapest for the breakdown
in the EU/IMF talks.

Hungary’s forint currency (EURHUF=D2: ) plunged more than 3
percent on Monday to around 292 — levels last seen in May 2009
— but climbed back and traded at 284.10 versus the euro at 0855
GMT on Thursday.

All 12-month Treasury bills were sold at an auction
(HUAUCTION01: ) as planned but the yield jumped, indicating that
markets remained wary. [ID:nBUD005419]

Orban’s government has shown surprisingly little sensitivity
to markets since taking over, and analysts said it was unlikely
to back down with the international lenders to avoid losing face
and votes.

Orban will speak in parliament at 1300 GMT, and parliament
will vote on the financial steps including the bank tax later in
the day. The bill is certain to pass given that Fidesz has a
two-thirds majority.

The measure aims to raise 200 billion forints from taxes on
the financial sector this year and also in 2011. The IMF wants
to see more durable structural measures, especially next year.

GOING IT ALONE?

Hungary has committed to Brussels to bring its budget
deficit below the EU’s mandated 3 percent of GDP level next year
and most analysts said there was no chance for Hungary to try to
negotiate a higher deficit with the bloc which is struggling
with grave deficit and debt problems.

“I’m not sure the new government does not want a new
agreement but it is clear that they want to detach the IMF from
the EU in their communication, framing the IMF as the bad guy as
if they were responsible for all the nasty things, demanding too
much, while the EU is the good guy in this picture,” said Zsolt
Kondrat at MKB Bank in Budapest.

He said a safety net would be good to have for Hungary.

“But if they stick to the deficit and there is a serious
programme attached to it, that will lend Hungary credibility and
our public debt can start declining next year,” he said.

While Hungary’s budget deficit is below the EU’s average,
it has a high public debt at 80 percent of GDP and a large stock
of foreign currency (Read more about trading foreign currency. debt held by households, which is a key
vulnerability when it comes to shifts in market sentiment.

Stock Research

(Additional reporting by Gergely Szakacs, Editing by Sonya
Hepinstall)

Hungary’s parliament readies to pass bank tax law