Hungary wants to repay IMF loan early and close fund's office

BUDAPEST (Reuters) - Hungary plans to pay back its IMF loan early and called on the fund to shut its Budapest office in what could be a symbolic move by Prime Minister Viktor Orban’s government to display its economic sovereignty.

Slideshow ( 2 images )

Hungary’s ability to avoid the austerity programs faced by many of its European neighbors will be the government’s main selling point when it bids for re-election next year.

In a letter to International Monetary Fund Managing Director Christine Lagarde on Monday, central bank chief Gyorgy Matolcsy said Hungary was considering an early repayment of outstanding sums owed on the 2008 loan.

Central Europe’s most indebted nation was pulled back from the brink of bankruptcy with a 20 billion euro rescue package from the IMF and the European Union amid the global crisis.

Shortly after taking office in 2010, Prime Minister Orban abruptly ended that program as the government sought to control the country’s financial affairs on its own. It initiated an unorthodox campaign that included Europe’s highest bank tax and special levies on business.

Relations between the two sides have been tetchy since then, with Orban’s populist government bolstering market confidence for about a year with the promise of a new IMF safety net, while running an anti-IMF campaign in local media.

By issuing the country’s first international bond since 2011 in February, Orban demonstrated he could go it alone by borrowing on global financial markets.

Central bank chief Matolcsy, Orban’s former economy minister, said he would initiate closure of the IMF’s resident representative office in Budapest, saying it was “not necessary to maintain” any longer.

An IMF spokeswoman said that as the posting of the Fund’s representative in Hungary, Iryna Ivaschenko, will end in late August and “the IMF’s presence in member countries is at the invitation of country authorities, the IMF will not seek to replace her.”

“The IMF looks forward to continued cooperation with Hungary in the context of regular bilateral consultations as with other member countries,” spokeswoman Angela Gaviria said in an emailed reply to Reuters questions.

Based on a summary by the country’s debt agency, Hungary had been due to repay the equivalent of 913 million euros to the IMF in each of the third and fourth quarters and another 299 million in the first quarter of 2014, an election year.

Based on IMF data, Hungary’s payment obligations towards the IMF total around 2.9 billion euros. An analyst at Citigroup, Eszter Gargyan said the difference was due to the fact that besides the Hungarian state, the central bank also owed more than 700 million euros to the IMF.

In the letter to the IMF, Matolcsy highlighted the pro-growth stance of the central bank, which has slashed interest rates to a record low of 4.25 percent over the past 11 months.

“Let me use this opportunity to personally congratulate you for your efforts in making the most of the Fund’s mandate... to promote economic growth,” Matolcsy wrote to Lagarde.

“Let me assure you that at the Magyar Nemzeti Bank, the central bank of Hungary, we put equal emphasis on this goal, in line with our legal mandate.”

Reporting by Gergely Szakacs; editing by Ron Askew; Editing by Toby Chopra