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(Reuters) - Hungary plans to pay back its IMF loan early and called on the fund to shut its Budapest office in what could be a symbolic move by Prime Minister Viktor Orban's government to display its economic sovereignty.
Hungary's ability to avoid the austerity programs faced by many of its European neighbors will be the government's main selling point when it bids for re-election next year.
In a letter to International Monetary Fund Managing Director Christine Lagarde on Monday, central bank chief Gyorgy Matolcsy said Hungary was considering an early repayment of outstanding sums owed on the 2008 loan.
Central Europe's most indebted nation was pulled back from the brink of bankruptcy with a 20 billion euro rescue package from the IMF and the European Union amid the global crisis.
Shortly after taking office in 2010, Prime Minister Orban abruptly ended that program as the government sought to control the country's financial affairs on its own. It initiated an unorthodox campaign that included Europe's highest bank tax and special levies on business.
Relations between the two sides have been tetchy since then, with Orban's populist government bolstering market confidence for about a year with the promise of a new IMF safety net, while running an anti-IMF campaign in local media.
By issuing the country's first international bond since 2011 in February, Orban demonstrated he could go it alone by borrowing on global financial markets.
Central bank chief Matolcsy, Orban's former economy minister, said he would initiate closure of the IMF's resident representative office in Budapest, saying it was "not necessary to maintain" any longer.
An IMF spokeswoman said that as the posting of the Fund's representative in Hungary, Iryna Ivaschenko, will end in late August and "the IMF's presence in member countries is at the invitation of country authorities, the IMF will not seek to replace her."
"The IMF looks forward to continued cooperation with Hungary in the context of regular bilateral consultations as with other member countries," spokeswoman Angela Gaviria said in an emailed reply to Reuters questions.
Based on a summary by the country's debt agency, Hungary had been due to repay the equivalent of 913 million euros to the IMF in each of the third and fourth quarters and another 299 million in the first quarter of 2014, an election year.
Based on IMF data, Hungary's payment obligations towards the IMF total around 2.9 billion euros. An analyst at Citigroup, Eszter Gargyan said the difference was due to the fact that besides the Hungarian state, the central bank also owed more than 700 million euros to the IMF.
In the letter to the IMF, Matolcsy highlighted the pro-growth stance of the central bank, which has slashed interest rates to a record low of 4.25 percent over the past 11 months.
"Let me use this opportunity to personally congratulate you for your efforts in making the most of the Fund's mandate... to promote economic growth," Matolcsy wrote to Lagarde.
"Let me assure you that at the Magyar Nemzeti Bank, the central bank of Hungary, we put equal emphasis on this goal, in line with our legal mandate."
(Reporting by Gergely Szakacs; editing by Ron Askew; Editing by Toby Chopra)
The Central Bank of Hungary has repaid its €721 million debt to the International Monetary Fund (IMF) ahead of schedule, clearing the way for the Fund to pack up its representative office in Budapest at the end of the month.
The repayment wipes the slate clean between the Central Bank of Hungary and the IMF, and the Hungarian authorities are keen to reduce the fund's presence in the country. The central bank's governor, György Matolcsy, informed the IMF's managing director, Christine Lagarde, of his plans to close the fund's Budapest office last month.
An IMF spokesperson acknowledged the Fund's presence in its member countries "is at the invitation of that country's authorities" and hence it "will not seek the replacement of the resident representative [Iryna Ivaschenko] when her mandate expires" at the end of August.
Under Hungary's stand-by arrangement (SBA) with the IMF, the central bank drew down 1.26 billion special drawing rights (SDRs) – worth €1.44 billion – in 2009. It began paying back the loan in 2012 and cleared its remaining obligations earlier this week.
András Balatoni, a senior economist at ING Bank, said the central bank had been losing money by holding the SDRs, as the cost of sterilising them was "very high".
By repaying the debt back early, he explained, the central bank was seeking to minimise its – and the government's – losses. The Central Bank of Hungary recorded a loss of 39.8 billion forint (€130 million) in 2012.
The Hungarian authorities will retain a relationship with the IMF – they will remain members and conduct "regular bilateral consultation", according to the Fund – but the closing the IMF's Budapest office is emblematic of the Hungarian authorities' recent attitude towards the institution.
Balatoni acknowledged that the central bank's repayment of its debt reduced the need for the IMF to have a physical presence in the country. The move will mean little to the markets, he said, and will serve more as a "message for the voters".
The relationship between the Hungarian authorities and the IMF has been strained at the best of times during the past few years, as the government refused to comply with the conditions of its loans and the central bank this year repeatedly ignored IMF advice on monetary policy.
In its latest meeting, at the end of July, the central bank's monetary council sanctioned a 12th successive 25-basis point rate cut as it dropped the key policy rate to 4%. In a statement accompanying its decision, the council suggested it would rein in its monetary easing on account of the growing volatility in global financial markets.
The minutes from that meeting , released today, re-asserted that view. "The significant reductions in interest rates so far and the volatile conditions in financial markets might justify changing the pace or extent of policy easing over the coming months", the minutes said.
According to Balatoni, the council will either continue to cut the rate by 25bp but do so more intermittently, or keep cutting at every meeting but by a smaller amount. Either way, he said, the easing cycle will likely stop when the rate drops to 3.5%.
Not since the 1930s in Germany has a major European country dared to escape from the clutches of the Rothschild-controlled international banking cartels.
This is stupendous news that should encourage nationalist patriots worldwide to increase the fight for freedom from financial tyranny.
Already in 2011, Hungarian Prime Minister Viktor Orbán promised to serve justice on his socialist predecessors, who sold the nation’s people into unending debt slavery under the lash of the International Monetary Fund (IMF) and the terrorist state of Israel. Those earlier administrations were riddled with Israelis in high places, to the fury of the masses, who finally elected Orbán’s Fidesz party in response.
According to a report on the German-language website “National Journal,” Orbán has now moved to unseat the usurers from their throne. The popular, nationalistic prime minister told the IMF that Hungary neither wants nor needs further “assistance” from that proxy of the Rothschild-owned Federal Reserve Bank. No longer will Hungarians be forced to pay usurious interest to private, unaccountable central bankers. - See more at: http://americanfreepress.net/?p=12418#sthash.9jSVyVgg.dpuf