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UPDATE 3-Hungary's Orban wants deal with IMF, cbank cuts rates
April 26, 2010 / 11:20 AM / 7 years ago

UPDATE 3-Hungary's Orban wants deal with IMF, cbank cuts rates

* Will aim for “partnership” with IMF/EU - PM elect Orban

* Orban lashes out at central bank, financial regulator

* Central bank cuts key interest rate by 25 bps to 5.25 pct

* President plans first session of new parliament on May 14

(Adds central banker reaction)

By Gergely Szakacs and Krisztina Than

BUDAPEST, April 26 (Reuters) - Hungary’s new government will not accept orders from the IMF or the EU when it renegotiates a deal with lenders, seeking backing for tax cuts and a plan to reduce debt, the prime minister elect said on Monday.

Viktor Orban, whose centre-right Fidesz party won a two-thirds parliamentary majority in Sunday’s elections, also criticised financial regulator PSZAF and the central bank saying there were doubts the two institutions did their jobs properly.

Orban and the central bank sparred already on the first day after elections, confirming investors’ concerns that there could be tensions between the new government and Governor Andras Simor who was appointed in 2007 for a six-year term.

Hungary’s forint currency and government bonds have rallied since the first election round on April 11, boosted by the prospect of a strong Fidesz government, and hopes for further interest rate cuts by the central bank (NBH).

The bank cut its main rate by 25 basis points to an all-time low of 5.25 percent on Monday NBHI and analysts said further easing was on the cards if the new government pursues tight fiscal policy and launches reforms.

Orban said his government will seek a partnership with the International Monetary Fund and the European Union -- with whom a financing deal expires by October -- and win them over to Fidesz’s plans to boost the economy. He again flagged a higher budget deficit for this year.

“In my view, neither the IMF nor the EU’s financial bodies are our bosses. We are not subordinate to them,” Orban told a news conference.

“We’ll be able to come to an agreement with the IMF about the contents of a package that will take effect already this year but...we will not accept diktats but present our own views and then try to win over market financiers, financial bodies of the EU and the World Bank and representatives of the IMF.”

For more of his comments, see [ID:nLDE63P15Z]

Orban said the budget deficit would overshoot the 3.8 percent-of-GDP target this year due to the outgoing Socialist government’s legacy -- and his government would seek an agreement with lenders on measures to contain the deficit while also cutting taxes significantly to boost the ailing economy.

Analysts see the 2010 deficit at 4.9 percent HUDEF1.

BACKSTOP DEAL

Hungary was rescued by an IMF-led loan from collapse in 2008 and this deal expires in October. Fidesz’s top economic strategist Gyorgy Matolcsy told Reuters last month Fidesz wanted a new deal with lenders to use as a backstop.

Hungary has not drawn on fresh IMF funds so far this year as it is able to finance itself from the markets, thanks to a big improvement in its budget position last year.

Investors will want to see clear plans soon from the new government on how it aims to cut taxes over coming years and also maintain hard-won fiscal stability, taking down Hungary’s public debt -- currently at around 80 percent of GDP.

Ratings agency Fitch warned on Monday there was little room for policy slippage after Hungary’s elections. [ID:nWLB3472]

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For more on Hungary’s election, see [ID:nLDE63L106]

For election graphics pls see here

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Fidesz has said it would reduce taxes, create jobs, and cut state bureaucracy but has not yet revealed detailed plans on how it wants to overhaul the inefficient local government sector, and reform health care and the education systems.

“Although the market may be happy with the overwhelming victory short-term, the possibly less tight fiscal policy or a merging of financial supervision with the central bank can alter the positive mood in medium term,” added David Nemeth at ING.

When asked if his government would overhaul the system of financial supervision and the bank, possibly merging them, Orban declined to give details, only said parliament had the right to change laws governing the two institutions.

He also declined to comment on whether he will seek personnel changes at either institution, but with reference to the central bank, he said, “We want to be proud of this institution (the central bank), including its leaders. That is not a shelter for off-shore knights.”

Simor told a news conference he planned to fill his mandate and he would not comment on Orban’s remarks.

Fidesz had repeatedly criticised Simor before the elections over his investments in a Cyprus-based firm and over what they said were serious policy mistakes by the central bank. (Additional reporting by Sandor Peto and Marton Dunai; Editing by Louise Ireland)

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