Hungary expects e20bn loan by April

Hungary could secure a new funding deal worth as much asËC adriaan.debeerL¸¬·D¸H¸ÿÿð —17-20 e20 billion (R205ËC)& kenny.marshallà£äí<íøíÿÿ)—297bn) with international banks by March or April, a government official said yesterday as economic sentiment in the emerging European economy plunged to a two-year lowËC adriaan.debeer¦êw&œ·Â"?ÿÿº–Gergely Szakacs and Marton Dunai BudapestJan 23 (Reuters) - Hungary could secure a new funding deal worth around 17-20 billion euros with international lenders by March or April, a top government official said on Monday as economic sentiment in the emerging European economy plunged to a two-year low. Prime Minister Viktor Orban's government is struggling to repair tattered ties with the European Union so it can secure a credit lifeline from it and the International Monetary Fund and stave off potential insolvency. The European Commission has piled pressure on Orban since the start of the year after his administration passed laws on media, the courts and the central bank that Brussels and other critics say undermine their independence and breach EU rules. The EU and IMF have told Hungary to change what is seen as the biggest stumbling bloc, the central bank law, as a prerequisite to talks on any loan package. Orban, dubbed Òthe ViktatorÓ by critics who fret over his efforts to centralise power, has said his government would rework several laws but the decision would be up to parliament, which his Fidesz party controls. Financial markets are looking for proof that Orban is serious, particularly after thousands of Hungarians marched in support of his policies on Saturday. He said the cabinet would work out the details by Monday, a day before he heads to Brussels to meet Commission President Jose Manuel Barroso. ÒI think the deal will be struck by March or April,Ó Orban's state secretary, Mihaly Varga, told TV2. He said he made the assumption considering it took a month for Budapest to arrange an earlier loan package when the economic crisis hit in 2008. When asked if media estimates that the package could be for 17-20 billion euros, Varga said they were probably not far off. He added he did not expect the EU and IMF to demand the government change one of its policy cornerstones, a flat tax it has enshrined in an overhaul of the constitution that came into force on Jan. 1. ÒI would be surprised if the EU or IMF had objections to (the flat tax) or would regard it as a precondition,Ó Varga said. The Commission launched infringement procedures against Budapest last week, zeroing in on the central bank law, which allows for the merger of the bank with the financial regulator and lets Orban name a third deputy Governor among other changes. Hungary wants the loan package to rebuild market confidence before it has to borrow nearly 5 billion euros on top of forint expiries to pay back both bondholders and an earlier IMF/EU loan package this year. MARKETS WARY Having demonised the IMF since taking power and broken off talks with them in a first deal in 2010, Orban executed an about face this month after investors fled Hungarian assets, driving the forint to a record low 324 per euro and bond yields to a prohibitively expensive 11 percent. The forint has since rallied back to 304 per euro and bond yields have stabilised at over 9 percent, but analysts say investors will remain on guard due to tetchy relations between Orban's government and the IMF and EU. ÒThe Hungarian government has disappointed too many times for investors to believe everything the Hungarian government is saying,Ó said Lars Christensen, an analyst at Danske Bank. ÒOn our own part we would like to see a shift change in the central bank law to ensure central bank independence before we fundamentally can get more positive on the outlook for the Hungarian markets.Ó A survey showed on Monday that confidence among consumers had plunged to its lowest level in over two years with expectations turning more grim in every sector, led by the industrial and services sectors, as well as households. Hungarians are particularly squeezed by a massive burden of foreign currency loans taken out, usually in Swiss francs, before the crisis on the bet that the forint would strengthen. But the forint has since dropped 45 percent against the franc, causing monthly mortgage payments to skyrocket and forcing regular Hungarians to cut back to the basics. ÒSave? Are you kidding me? With petrol at 440 forints per litre? With the euro over 300 forints?Ó said Jozsef Gardos, a 38-year old waiter in Budapest. ÒSoon enough I won't be able to afford my happy hour beer, let alone save up for something big. It's just day by day, man.Ó Polls show 84 percent of people think Hungary is going in the wrong direction but on Saturday, over 100,000 people marched in Budapest to show support for Orban's government in a rally marked by speeches from organisers vowing to fight against becoming Òa colonyÓ of the West. Analysts said the size of the rally was a signal that Orban's Fidesz party remained the most popular political force in the central European state of 10 million. It was larger than the 70,000-strong demonstration on Jan. 2 staged by opposition protesters against the new constitution, pushed through by the two-thirds majority Orban's Fidesz party holds in parliament. But analysts also warned that the vocal domestic support could give a Orban, a hard charging politician who does not shy away from controversy, impetus to drive a hard bargain in talks with the EU and IMF. ÒThe risks still are of a long drawn out process of moving to conclude an agreement and even thereafter tortuous discussions around the regular IMF/EC reviews which are likely to be part and parcel of any agreement,Ó said Tim Ash, head of CEEMEA research at bank RBS. (Writing by Michael Winfrey; editing by Anna Willard) 2012-01-23 11:02:44+00:00 GMT+00:00 (Reuters). Source