It would be good to know what the real story is. Is it simply another case of bad communication or it is something more? Within twenty-four hours the Hungarian government seemingly reversed itself on the question of impending negotiations with the IMF.
It all started with the National Bank's decision not to lower the interest rate. András Simor, chairman of the central bank, normally gives a press conference at the conclusion of the meeting of the Monetary Council. Simor indicated that he was expecting higher inflation next year and a slower recovery than originally thought. The journalists also asked whether he knew of any government plans to resume negotiations with the IMF. Simor answered in the negative. As soon as the press conference was over, the Hungarian forint, which had been inching up during the previous week, began to slide. Earlier the exchange rate was hovering around 278 forints to the euro, by Monday night it reached 283. The next day at one point it traded at 286.23.
It was at this time that Bloomberg learned from the National Economy Ministry (NEM) that "negotiations [with the IMF] will likely continue in the autumn and an agreement will be reached." Today an economist and earlier central bank chairman, Péter Ákos Bod, wondered whether the reporting by Bloomberg was perhaps just a misunderstanding. However, what Bod most likely didn't realize was that the information reached the Budapest representative of Bloomberg by e-mail. It could have been no misunderstanding. The reporter quoted parts of the e-mail verbatim.
When the Bloomberg report was published, MTI, the Hungarian news agency, didn't quite believe it and inquired from NEM whether it is really the case that Hungary will resume talks with the IMF come fall. The ministry's spokesman confirmed the news although the packaging was somewhat vague. He didn't go into details but indicated that negotiations will continue since they were never broken off.
The Financial Times reported the beneficial effects of the news which "provided a boost to the forint, which had lost more than 2 per cent this week amid doubts about Hungary's growth and inflation outlook." However, there were people who had their doubts. "I am taking this statement with a very, very large pinch of salt…. This move is very odd given the strong anti-IMF rhetoric from the government," Peter Attard Montalto of Nomura said.
Well, Mr. Montalto was right. Late at night yesterday, Lajos Kósa appeared on TV to set things straight. Hungary will be in touch with the IMF but there is no question of new negotiations or receiving another loan. Well, that short appearance and announcement on TV2 had the predictable effect: the forint began to fall and Hungary once again was breaking news on CNBC. The forint, which had strengthened a bit the day before (around 281 forints to the euro) immediately weakened and by early afternoon it was over 284; the situation hasn't changed since.
Origo, an internet paper, tried to get in touch with Lajos Kósa, Mihály Varga, and György Szapáry, economic advisor to Viktor Orbán, but to no avail. Commentators simply cannot figure out what is behind this confusion. Perhaps "some sober voices managed to have the upper hand in the circle of economic advisors," but within twenty-four hours the political leaders torpedoed the plan because they considered such a move politically unpopular at home.
Bloomberg also reported "internal conflicts within the party," but most people simply don't understand what's going on in Budapest. Tim Ash, head of emerging market research at the Royal Bank of Scotland Group Plc in London, said: "Why the government needs to make it so clear at this stage why they are not going to seek to renew the agreement with the IMF is beyond me…. They seem determined to prove that they can go it alone, a strategy which could still end in tears."