Talks with the IMF on financial aid will continue in September, Hungarian Finance Minister Gyorgy Matolcsy said today, after negotiations appeared to run into difficulties over the weekend.
'The IMF will come back in September and we will continue negotiating then,' Matolcsy told CNBC news channel, after the Hungarian forint suffered a sharp drop against the euro early today.
'Talks did not break down but they have been suspended,' he insisted.
Hungary's government failed over the weekend to reach a deal with the IMF and the European Union that would allow it to draw on the remainder of its existing €20 billion standby credit line.
In talks on Saturday, the IMF head of mission in Hungary, Christoph Rosenberg, called on Budapest to make 'difficult decisions' to cut its public deficit, in particular in slashing spending and restructuring public enterprises.
IMF and EU experts, who visited Hungary from July 6 to 17, complained that the government had not, for example, fully studied the likely effects of the proposed financial sector tax, with which Budapest aims to raise up to €650m per year in additional revenue.
Banks have criticised the tax and the EU executive body said Saturday the levy would help in the short term but could also have 'a significantly negative impact on the country's investment climate and economic growth'.
'We do not want to carry on with further austerity measures, this is why we want to introduce a special bank levy, which obviously many bankers do not like,' Matolcsy said.
Hungary narrowly escaped bankruptcy in late 2008, thanks to a €20 billion financial lifeline from the IMF and the EU in a deal that expires in October.
The European Commission said the corrective measures considered by the government so far were 'largely of a temporary nature' and 'fall somewhat short' of what is required.
Analysts said market weakness could spill over to other markets in the central European region, and the sell-off would likely to push the Hungarian government to reach agreement with its lenders soon.
Hungary, which runs central Europe's highest public debt at about 80% of GDP, won't be able to use remaining funds in its €20 billion loan secured in 2008 until it reaches a deal with the IMF and EU.
Even though Hungary is not under immediate financing pressure, such delays would raise its financing costs, potentially forcing the central bank to raise interest rates and putting pressure on Hungary's ratings, analysts said.
The Hungarian forint fell sharply today, closing at 290.50 against the euro, down from 282.10 forint on Friday.
