July 10, 2012 / 9:34 PM / 7 years ago

Hungary PM sets tough ground for IMF credit talks

BUDAPEST (Reuters) - Hungary’s government will only accept conditions in loan talks with the IMF and EU that serve the country’s interests and will stick with a new transaction tax even if the European Central Bank opposes it, Prime Minister Viktor Orban said on Tuesday.

Orban’s government is due to start negotiations with the International Monetary Fund and the European Union about a financing backstop next week.

“If something serves our goals then we will negotiate about that, will agree on that - if it does not serve our goals, or rather the country’s goals, then we would rather bypass it,” Orban told private news channel HirTV in an interview.

“So our starting point is not the conditions set by the negotiating partner, but our own objectives.”

Orban’s government has spooked markets with unorthodox policies in the past two years that included Europe’s biggest bank tax, a nationalization of mandatory private pension funds, and heavy windfall taxes on energy, retail and telecoms firms.

Just before the start of talks about the IMF/EU loan, which Hungary needs to cut its high borrowing costs, the ruling Fidesz party pushed through a new transaction tax in parliament which will be also levied on the central bank.

The new tax will finance cuts in employers’ social taxes worth 300 billion forints ($1.27 billion) to protect jobs, as the economy is expected to slip into recession this year and Orban faces parliamentary elections in 2014.

The ECB has not yet published its view on the new tax which the National Bank of Hungary has said would infringe its independence, and which analysts said could be a thorny issue during talks with the IMF and EU.

Orban said extending the tax to the central bank was “logical, necessary and unavoidable” and no one could veto parliament’s decision made on Monday. The tax will be also levied on commercial banks and the state treasury.

“Hungary is governed by Hungarians, and if the Hungarian parliament has decided on introducing a tax on financial transactions, has determined who this will apply to, then that’s the way it will be,” he said.

“No one can veto the Hungarian parliament’s decision.”

“The ECB has the right to express its opinion, it’s worth listening to its opinion ... but has no possibility of taking part in the decision. Regardless of this, we respect the ECB very much, of course,” he said.

Orban also ruled out the introduction of a real estate tax or a wealth tax.

The IMF and the European Union, who go on a joint mission to Hungary on July 17, have not yet signaled any potential conditions for agreement on the multi-billion euro credit line.

But analysts see the new financial transaction tax as further evidence of the government’s determination to plough its own furrow on policy, and expect very difficult talks.

Most analysts expect Hungary to reach an agreement with the IMF and EU only towards the end of the year. Some say a deal will only happen if the euro zone crisis escalates and markets put Hungary under significant pressure.

Hungary’s forint hit a record low versus the euro in January and its credit rating was cut to “junk” but the prospect of an IMF deal has since propped up local markets.

$1 = 234.886 Hungarian Forints Editing by Alison Williams

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