EU-IMF quit Hungary talks, cite pressure on central bank

(BUDAPEST) - EU and IMF experts discussing a new credit line for Hungary cut short a visit Friday, citing concerns over the independence of the country's central bank, but the government denied any breakdown.

"The European Commission has decided, in accordance with the IMF, to interrupt its preparatory mission," Economic Affairs Commissioner Olli Rehn's spokesman Amadeu Altafaj said in Brussels.

EU and International Monetary Fund officials arrived Tuesday in Budapest to prepare for talks on a credit line of 15-20 billion euros ($19-26 billion) for Hungary.

EU member Hungary sought help in November after it ran into trouble raising money on the bond markets and its currency, the forint, fell sharply against the euro.

In a statement, the government insisted Friday that the delegations' hasty departure did not represent a breakdown in the talks.

"The talks being informal and not formal, therefore we cannot speak about a breaking off of official negotiations," said minister without portfolio Tamas Fellegi, who headed the Hungarian delegation in meetings with the EU and IMF.

"The goal of the talks was to make contact as well as preliminary coordination of the schedule and themes of the negotiations proper."

Earlier, a government spokesman said formal talks would start in January.

The IMF meanwhile said it was concerned by "possible limitations to Hungary's central bank independence under a proposed new central bank law.

"Independence of central banks is one of the cornerstones of sound economic management as well as the (EU) Maastricht Treaty. Given that the government did not indicate a willingness to delay passage of the law to allow for further discussions, it was decided to interrupt the joint ... preparatory mission.

"The IMF, in close coordination with the (EU), remains in touch with the authorities to determine the next steps," it added.

The government tabled legislation earlier this week in parliament which would merge the central bank with the financial regulatory authority, effectively demoting the head of the bank, Andras Simor, critics said.

"The European Commission is concerned about the intention of the Hungarian authorities to push forward with the adoption of laws that can potentially undermine the independence of the central bank," the EU executive said.

The Commission said the European Central Bank had not been sufficiently consulted and the government had rushed the changes into parliament when the EU and the IMF had said they would discuss the issue during "formal negotiations on a possible precautionary financial assistance planned for early next year."

On Friday, Budapest appeared to acknowledge the criticisms, noting that "the evaluation and inclusion of the proposals is currently underway."

Fellegi insisted that "the Hungarian delegation continues to be ready to negotiate without prior conditions."

In the wake of reports in Hungary that the talks had ended, the forint fell to 305.10 to the euro at 1525 GMT from around 301 forints earlier.

Krisztian Szabados, director of the Hungarian think-tank Political Capital, told AFP that the government had made a "mistake."

"The government has no other option but to come to terms with the EU and the IMF, otherwise Hungary will face a currency exchange crisis," he said.

"If the Hungarian forint falls towards 320-330 forints to the euro, one million households will go bankrupt."