A “list of horrors”.

That’s how Hungary’s prime minister Viktor Orbán described on Thursday the conditions given by the IMF / EU for a deal, via a video on his Facebook page.

It’s just the latest twist in the long-running credit line saga, and comes one day after Orbán and his right-hand finance man Mihály Varga had talked confidently about reaching a deal “this autumn”.

There could be no deal “at this price”, said Orbán. Within minutes the forint shed in excess of 1 per cent, falling from Ft285.43 to Ft288.86 to the euro – although it had recovered to Ft286.63 later in the afternoon. Shares in OTP, Hungarys biggest bank, also did a prompt about turn, losing 2.5 per cent and wiping out earlier gains in the session.

Orban blamed the “long list” of onerous conditions that had, supposedly, been leaked to Magyar Nemzet, a slavishly pro-government daily, on Wednesday. The list contains a number of Orbán’s most sacred political themes, including cuts in pensions, family allowances and transport perks, an increase in the age of retirement, the introduction of a property tax, the abolition of the bank and financial transaction taxes, and modifications to the flat-rate, personal income tax regime.

What to make of all this? Neil Shearing of London-based Capital Economics wrote in a note that this latest in a very long line of twists – Budapest first turned to the IMF / EU for a loan 10 months ago – was “unlikely to spell the end of negotiations”, although it would be “likely to result in a sell-of in the forint and Hungarian bonds.”

That these conditions were points of contention should come as no surprise. We’ve noted before that the IMF was likely to disagree with the Hungarian authorities on the latter three points in particular.

Despite this latest move, market turbulence will surely force Hungary back to the negotiating table. In the meantime, he warned,

the news is likely to expose the extent to which the recent rally in Hungarian assets has been built on flimsy foundations.

Mujtaba Rahman, Europe analyst with the Eurasia Group, had a more convoluted conspiracy theory about the whole affair – suspecting Orbán of creating the ‘leaked conditions’ for politcal gain.

“As the reported leaks have not been confirmed by either the Commission or the IMF, it’s unclear whether they accurately reflect what creditors are actually looking for. The government may be playing politics with the EU and IMF by exaggerating what is on their to-do list. This way if there is a deal, the government can say they won a large number of concessions; if there is no deal, Orbán can claim that it’s because he was protecting the interests of the Hungarian people,” he told beyondbrics.

“The politics is nasty, but it is a good strategy by the government,” he concluded.


Related reading:
Hungary rate cut surprises markets
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Hungary-IMF: still no deal
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Orbán stands firm in central bank dispute
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