Hungary’s delay of a vote on amendments to a disputed central bank law will help resolve differences blocking talks with the International Monetary Fund, said Mihaly Varga, the country’s chief negotiator.

Financing is guaranteed this year and by 2013 Hungary would like to have a “a safety net” from the IMF, Varga, the minister in charge of relations with international financial institutions, said in an interview during a World Economic Forum meeting in Istanbul today. Hungary may consider selling international bonds while negotiating the loan, he said.

Prime Minister Viktor Orban asked for IMF financing in November as the forint fell to a record low against the euro and the country’s credit grade was cut to junk. Varga, the premier’s former chief of staff who took his current job on June 1, requested delaying a June 4 vote in parliament on the central bank law after the European Central Bank said proposed changes still fail to safeguard monetary-policy independence.

The delay “give the chance for further negotiations if it’s needed,” Varga said. “We are ready to sit down at the negotiating table immediately as soon as” the IMF and the European Union “decide when and under what conditions they want to begin the talks.”

The forint rose 1.2 percent to 298.8 against the euro as of
4:06 p.m. in Budapest today, advancing for a third day. It has weakened 4.2 percent in the past month, the world’s third-worst performance behind the Malawian kwacha and the Syrian pound.

‘Categorically Refute’

Economists including Tim Ash of Royal Bank of Scotland and Peter Attard Montalto of Nomura have said Hungary may be emulating a tactic used by Turkey, which discussed a possible IMF loan for more than a year and a half until the government announced in March 2010 that it no longer needed a backstop.

Hungary is delaying the talks by “dragging” its feet on changing a disputed central bank law, Citigroup Inc. said on May 17 after meeting the Washington-based lender’s officials in Budapest.

“I would like to categorically refute” assumptions by some market participants that the government isn’t really seeking an agreement, Varga said. “Hungary isn’t preparing for a negotiation that isn’t going to lead to an agreement. We would like a good agreement that’s beneficial for the country and reassures the IMF and the EU that Hungary is a reliable partner.”

‘Technical’ Issues

The vote on the central bank law amendments will probably take place before parliament goes into summer recess on July 15, Antal Rogan, head of the ruling Fidesz party’s group of lawmakers, said June 4. Varga said he met Hungarian central Bank President Andras Simor yesterday and is planning to meet Simor’s deputy, Ferenc Karvalits, in “the coming days” about Hungary’s negotiating position.

Remaining issues about the central bank law are “technical” and will be resolved in talks between the central bank, Hungary’s government, the ECB, the IMF and the European Commission, Varga said.

With about 35 billion euros ($44 billion) of central bank foreign exchange reserves “financing of the country is secured,” Varga said. “This year is guaranteed and by next year we would like to get to the point where Hungary has this safety net in place.”

While Hungary always needs to be weighing its financing options, selling Eurobonds “would not be realistic at the moment,” Varga said. “The market is also waiting for the start of the negotiations.”

Once Hungary has started talks on the international bailout it will become “possible to consider” an international bond sale, should market sentiment regarding turmoil in the euro region improve, he said.

(bloomberg)