Economy
Hungary forint should be steady around 275-285 vs. EUR - Varga
Hungary is not requesting IMF assistance because it needs money; “we are asking insurance for what is happening out there", if markets crumble in Europe for instance or there is [market] turbulence, Hungary could need such an agreement, Varga told commercial broadcaster HírTV late on Wednesday. Answering a question he also said he would reject a nomination for the central bank (NBH) Governor’s post.
An IMF delegation started Article IV consultation and the third review under Post-Program monitoring of the Hungarian economy yesterday. The regular half-yearly mission in scheduled to remain in the country until 28 January.
“We formally do not talk about the credit negotiations [...] but every subject we are addressing are still about whether or not we’ll have a new credit agreement," Varga added.
Varga underlined that it should be obvious to everyone Hungary stands firmly on its feet; government bonds can be sold, risk premia decreased markedly and government security yields also dropped. The situation is a lot more stable than a year ago, but the cabinet maintains its intention for a credit agreement, he said.
He said the country does not need funds only a safety net in case things go south outside the borders, elsewhere in Europe.
Varga said the government wants to secure a deal which Poland has, as Warsaw requested no actual financial assistance only security that in case of trouble they can turn to the IMF. (Poland was one of the first countries to take advantage of a new IMF lending tool, the Flexible Credit Line (FCL), established in March 2009 and enhanced in August 2010. Warsaw has never tapped the facility and there are no policy conditions attached to using it, should authorities need to access the credit line.
Poland currently seeks to extend the current two-year FCL arrangement for about USD 30 bn that ends this month. The IMF is supportive of renewing the deal.
“Poland continues to have very strong economic policies and policy frameworks, including a credible inflation targeting regime, an effective financial supervisory framework, and a firm commitment to sound fiscal policies," said David Lipton, First Deputy Managing Director of the IMF last month.
“I [...]intend to move ahead rapidly in seeking approval by the Fund’s Executive Board of Poland’s request early in 2013," he added.
Varga reminded that in a recent impact study the IMF acknowledged that even its own staff could be wrong and so a government insisting on representing national interests at credit talks with the Fund should stick to its stance. The IMF acknowledged that occasionally they have recommended austerity measures the impacts of which they have estimated incorrectly and recession in some countries only got deeper, Varga noted.
Varga underlined that the country is in a better situation now than in July 2012 and that the IMF does not question it either that financial stability has been restored. At the same time, the IMF staff continues to have the same view on growth as before, they still want to know how the Orbán cabinet will create as many jobs as it plans to and they recommend the same things to boost investments. The Fund believes lending is indispensible for growth and because banks are overtaxed their burdens should be reduced, Varga said.
In the current situation the question is whether the IMF is willing to accept Hungary’s economic policy model as a bargaining power or it insists that “we should chance the structure of this economic policy," the minister without portfolio added.
Hungary does not need IMF funds; “we can sell" HUF 420-450 billion worth of government securities per quarter and with that the country can be safely financed, he said.
The fluctuation in the forint exchange rate stems from the high level of public debt and the large indebtedness of households, Varga noted. Until Hungary’s debt ratio is the highest in the region there will be speculative attacks aimed at affecting the HUF exchange rate, he said, adding that Poland’s zloty also depreciated over the past few days.
In Varga’s view, weakening the forint is dangerous in the current situation of the Hungarian economy. Considering the foreign exchange exposure of the state and households the forint needs to remain stable in the 275-285 range versus the euro, he added.Answering a question he said he was not asked to accept nomination for the central bank’s top seat; “I consider my parliamentary work as the basis of my job. If I received such request I would respectfully decline."
An IMF delegation started Article IV consultation and the third review under Post-Program monitoring of the Hungarian economy yesterday. The regular half-yearly mission in scheduled to remain in the country until 28 January.
“We formally do not talk about the credit negotiations [...] but every subject we are addressing are still about whether or not we’ll have a new credit agreement," Varga added.
Varga underlined that it should be obvious to everyone Hungary stands firmly on its feet; government bonds can be sold, risk premia decreased markedly and government security yields also dropped. The situation is a lot more stable than a year ago, but the cabinet maintains its intention for a credit agreement, he said.
He said the country does not need funds only a safety net in case things go south outside the borders, elsewhere in Europe.
Varga said the government wants to secure a deal which Poland has, as Warsaw requested no actual financial assistance only security that in case of trouble they can turn to the IMF. (Poland was one of the first countries to take advantage of a new IMF lending tool, the Flexible Credit Line (FCL), established in March 2009 and enhanced in August 2010. Warsaw has never tapped the facility and there are no policy conditions attached to using it, should authorities need to access the credit line.
Poland currently seeks to extend the current two-year FCL arrangement for about USD 30 bn that ends this month. The IMF is supportive of renewing the deal.
“Poland continues to have very strong economic policies and policy frameworks, including a credible inflation targeting regime, an effective financial supervisory framework, and a firm commitment to sound fiscal policies," said David Lipton, First Deputy Managing Director of the IMF last month.
“I [...]intend to move ahead rapidly in seeking approval by the Fund’s Executive Board of Poland’s request early in 2013," he added.
Flexible Credit Line
The FCL is available to countries with very strong fundamentals, policies, and track records of policy implementation and is particularly useful for crisis prevention purposes. FCL arrangements are approved for countries meeting pre-set qualification criteria.
The FCL is a renewable credit line, which could be approved for either one or two years. Two-year arrangements involve a review of eligibility after the first year. If the country draws on the credit line, the repayment period is between three and five years.
There is no cap on access to Fund resources under the FCL, and access is determined on a case-by-case basis. Qualified countries have the full amount available up-front, with no ongoing conditions. There is flexibility to either draw on the credit line at the time it is approved, or treat it as precautionary.
The FCL is a renewable credit line, which could be approved for either one or two years. Two-year arrangements involve a review of eligibility after the first year. If the country draws on the credit line, the repayment period is between three and five years.
There is no cap on access to Fund resources under the FCL, and access is determined on a case-by-case basis. Qualified countries have the full amount available up-front, with no ongoing conditions. There is flexibility to either draw on the credit line at the time it is approved, or treat it as precautionary.
Varga reminded that in a recent impact study the IMF acknowledged that even its own staff could be wrong and so a government insisting on representing national interests at credit talks with the Fund should stick to its stance. The IMF acknowledged that occasionally they have recommended austerity measures the impacts of which they have estimated incorrectly and recession in some countries only got deeper, Varga noted.
Varga underlined that the country is in a better situation now than in July 2012 and that the IMF does not question it either that financial stability has been restored. At the same time, the IMF staff continues to have the same view on growth as before, they still want to know how the Orbán cabinet will create as many jobs as it plans to and they recommend the same things to boost investments. The Fund believes lending is indispensible for growth and because banks are overtaxed their burdens should be reduced, Varga said.
In the current situation the question is whether the IMF is willing to accept Hungary’s economic policy model as a bargaining power or it insists that “we should chance the structure of this economic policy," the minister without portfolio added.
Hungary does not need IMF funds; “we can sell" HUF 420-450 billion worth of government securities per quarter and with that the country can be safely financed, he said.
The fluctuation in the forint exchange rate stems from the high level of public debt and the large indebtedness of households, Varga noted. Until Hungary’s debt ratio is the highest in the region there will be speculative attacks aimed at affecting the HUF exchange rate, he said, adding that Poland’s zloty also depreciated over the past few days.
In Varga’s view, weakening the forint is dangerous in the current situation of the Hungarian economy. Considering the foreign exchange exposure of the state and households the forint needs to remain stable in the 275-285 range versus the euro, he added.Answering a question he said he was not asked to accept nomination for the central bank’s top seat; “I consider my parliamentary work as the basis of my job. If I received such request I would respectfully decline."
