IMF, EU suspend review on emergency loan to Hungary

11:11, July 18, 2010      

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The IMF and EU decided on Saturday to halt a review on Hungary's funding program, warning that the current budget plan was not good enough and it should take further measures to improve poor fiscal conditions.

IMF officials said in a statement that "many questions remain open" in negotiations with the Hungarian government, adding the IMF delegation,which has been in Hungary since July 6, would return to Washington to try to "reconcile the remaining differences."

The IMF, The World Bank and the European Union granted Hungary an emergency standby loan of 25 billion U.S. dollars in November, 2008.

The Hungarian government would like to alter portions of that loan agreement. The early return to Washington leaves the review unfinished.

Unnamed government officials acknowledged "serious differences" on two issues - a special tax Hungary is ready to levy on banks and insurance companies this year, and its plans to cut the central bank governor's salary by three-quarters, local wire service MTI reported.

The IMF said thanks to a pickup in exports, the Hungarian economy had overcome the worst of the recession, but warned that domestic demand continued to be quite weak, partly because of difficulties in obtaining credit.

Noting that the planned 3.8-percent deficit of GDP this year, and the less than 3 percent next year are in line with the country's necessary consolidation, the IMF said the tax on banks would be an obstacle to businesses obtaining the credit needed for growth.

It also warned that further measures should be taken to increase inflow and reduce expenditure. The IMF particularly pointed at major state-owned companies, whose money losing operations were taking a big chunk out of the central budget.

National Economy Minister Gyorgy Matolcsy said Hungary had openly discussed the serious problems resulting from failed budget management by the previous administration in the first half of the year.

He explained the bank tax and public sector salary caps -- including the intended cut in Simor's salary -- were needed to make up the budget shortfall.

The minister also underlined the government's commitment to turn Hungary into the most competitive, reliable and trustworthy country in Central Europe.

Matolcsy said the government was ready to continue negotiations with international organizations including the IMF and the EU. The EU also objected to the bank tax and the central banker's salary cut.

Internet news portal index.hu reported Hungary wanted to increase this year's deficit to as much as 4.5 percent of GDP. Neither the Hungarian government nor the IMF confirmed it.

Source: Xinhua

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