Reuters: Regulatory News: UPDATE 2-IMF clears Hungary bank law; aid talks in sight

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UPDATE 2-IMF clears Hungary bank law; aid talks in sight Jun 27th 2012, 21:37 Wed Jun 27, 2012 5:37pm EDT * IMF chief approves proposed changes to central bank law: minister * Agreement ends months of dispute over bank's independence * Aid talks could start in mid-July; volatile forint firms * IMF says ready to start talks after parliament approves law By Krisztina Than and Sandor Peto BUDAPEST, June 27 (Reuters) - The International Monetary Fund has approved Hungary's proposed changes to its disputed central bank law, the government said on Wednesday, ending a months-long dispute over the bank's independence and opening the door to talks on financial aid. Central Europe's most indebted nation, which has spooked markets with fund-raising policies including Europe's highest bank tax, first signaled its plan to seek outside help to stabilize its economy in November. The dispute over the central bank law, which the IMF and the European Union saw as threatening the independence of the National Bank of Hungary, has kept borrowing costs high, hampering government efforts to roll over nearly 5 billion euros ($6.2 billion) of external debt. It has also prevented the central bank from cutting interest rates from the EU's highest level, even though the economy is headed into another downturn after a steep recession in 2009. Mihaly Varga, Hungary's minister in charge of talks with the IMF, told a news conference that IMF director Christine Lagarde had approved the government's proposed changes to the disputed legislation, citing a letter from Lagarde. "The proposed amendments and commitments address our key concerns," said a copy of Lagarde's letter, addressed to Hungary's government and central bank and handed out to journalists. "Once the proposed amendments are adopted, the Fund will be ready to enter into negotiations on a joint IMF/EU program together with our European partners," it said. The IMF representative in Hungary confirmed the contents of the letter. Varga told a news conference that once parliament approves the changes, expected by July 12 at the latest, the talks could start in mid-July. "The Fund will be ready to start negotiations once the Central Bank law is adopted by parliament," an IMF spokeswoman said in a statement in Washington. "The timing of a mission will be agreed with the Hungarian authorities and the European counterparts." The apparent breakthrough in enabling the talks boosted the volatile Hungarian forint to 286.75 to the euro by 1449 GMT from around 287.20 before the news, although it was still off its strongest level of the day, 285.50 per euro. Hungary seeks a multibillion-euro safety net from the IMF and the EU to rein in borrowing costs and prevent a market crisis after its credit rating was slashed to "junk" status due to weak growth, high debt and unpredictable policies. Analysts have said negotiations on a funding deal could be difficult as Orban is adamant about his flagship flat tax and is only seeking an "insurance" against market and economic risks from the euro zone crisis. The government is also sticking to exotic measures, such as a hefty new tax on financial transactions from 2013, to plug holes in the budget while avoiding the outright austerity measures that have toppled several governments across Europe. Link this Share this Digg this Email Reprints

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