BUDAPEST (Reuters) - Hungary scrambled to allay fears on Friday that aid negotiations were breaking down after a website said international lenders would not restart talks unless the government changes its economic approach.
The minister in charge of the aid talks, Mihaly Varga, told Reuters that negotiations with the International Monetary Fund had been ongoing in some form since the summer.
"In July we managed to begin the talks. Since then, we have been in continuous and sustained contact," Varga said in a rare telephone interview.
"This is a continuous negotiation methodology, which has physical forms, but can also take place over the phone or in emails, so these have not broken down at all."
The IMF was not immediately available for comment.
Budapest first said it would seek a financial backstop from the Fund nearly a year ago, since when Prime Minister Viktor Orban has sent conflicting signals on how close the country is to a deal that could cap its borrowing costs.
In the last month, he has said both that an agreement with the Fund could be clinched soon and that the country of 10 million people would not be ruled by "outsiders".
Orban's unorthodox economic policies over the last two years had unsettled investors, but recently they have seemed to give the government the benefit of the doubt. The forint and bonds have rallied this month as monetary easing in the United States and euro zone has fuelled appetite for risk assets.
But confidence was shaken on Friday after news website origo.hu cited unnamed government sources as saying the IMF was holding out on further talks over aid unless the government changes its economic tack.
The report triggered a 1 percent weakening in the forint currency against the euro and pushed 10-year borrowing costs 17 basis points higher.
The origo.hu report said the IMF was upset with a government media campaign that has splashed ads across newspapers, billboards and news websites saying the administration would "not give in" to IMF demands for austerity.
It ran full-page advertisements in several national dailies with slogans demanding "respect and trust" from the Fund and saying Hungary would "not surrender its independence".
Varga said that despite the campaign, which raised eyebrows at the IMF's annual meetings in Tokyo this month, he had had "normal, constructive discussions" with the Fund and that nothing indicated any suspension of the talks.
Earlier this month Orban said the country was on the verge of agreeing a deal, and ministers have given no indication previously that talks were in danger of breaking down.
But economists, most of whom believed in January when the forint plumbed record lows that an IMF deal was inevitable, now give only a 50-50 percent chance that an agreement will be reached, and even those still hopeful expect it only in 2013.
"It has been visible that a deal has not been the government's priority recently," said analyst Gergely Szabo Forian of Pioneer Investment Management.
SANCTIONS THREAT
Orban cut short an earlier IMF deal after taking power in 2010. His government has since embarked on a string of non-traditional policy moves, including imposing the EU's highest bank tax, as well as other levies on foreign firms and the nationalization of $14 billion in private pension assets to finance the deficit.
He is now trying to keep the budget deficit below 3 percent of output, a threshold Hungary must hit to avert sanctions that could cost it millions of euros in EU development funds.
With its economy already in recession and hardly any growth expected in 2013, losing the funds would be a painful blow to Orban as his conservative government gears up for an election in the first half of 2014.
But its response - a package of deficit cuts unveiled this month - highlights that Budapest is not yet ready to abandon the approach that has often put it at loggerheads with Brussels.
In contrast to a series of proposals from its prospective lenders after meetings in July, Hungary rowed back on a promise to halve the bank tax next year and will double a tax on financial transactions.
The Commission is expected to publish its assessment of Hungary's latest fiscal adjustment measures on November 7.
"We are waiting for the EU Commission to make its assessment. We will see what happens, whether further steps are needed," Varga said.
"Once the EU Commission and the IMF make their assessment, they will decide what proposal to make with regard to the talks."
(Additional reporting by Sandor Peto; Writing by Michael Winfrey and Gergely Szakacs; Editing by Catherine Evans)
Source: http://news.yahoo.com/hungarian-government-says-imf-talks-not-broken-down-132523194.html
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