IMF bailout was loan, not cooperation deal, says Hungary's Orban

(BUDAPEST) - A multi-billion-euro rescue package that saved Hungary from bankruptcy two years ago was a loan rather than an economic cooperation deal, Hungarian Prime Minister Viktor Orban said Monday.

The 20-billion-euro (25-billion-dollar) financial lifeline that the International Monetary Fund, the World Bank and the European Union threw Hungary in October 2008 "wasn't a cooperation agreement, only a borrowing contract," the Hungarian news agency MTI quoted Orban as saying.

"We need to enter an economy policy cooperation agreement with the European Union," Orban told a meeting with foreign embassy heads here.

The premier's comments came a day after EU Commissioner for Economic and Monetary Affairs, Olli Rehn, warned that Hungary could not afford to delay efforts to rein in its public deficit.

"At a time when other EU member countries are on the road of fiscal consolidation, Hungary can't afford to deviate from this path," Rehn told the weekly newspaper Vasarnapi Hirek on Sunday.

Hungary suspended talks with the EU and the IMF in mid-July after the government refused to implement further austerity measures.

Under the terms of the bail-out, Budapest was required to bring the deficit down to 3.8 percent of gross domestic product (GDP) this year and then to below 3.0 percent next year.

But premier Orban, whose centre-right Fidesz party stormed to power with a two-thirds majority in the general elections in April, said that while his administration would abide by the 2010 target, it could not commit to the 2011 target, insisting that Hungary has already done enough belt-tightening.

Orban has hit out at what he sees as IMF meddling and says Hungary will need no further aid from the Washington-based lender after the current loan agreement expires in October.

Furthermore, Budapest will negotiate with the EU on how and when to curb its deficit in future, he has insisted.

Nevertheless, EU Commissioner Rehn made it clear that the EU would not give Budapest any more leeway, either.

"Instead of increasing the budget deficit, Hungary should follow sound fiscal policy which is a prerequisite for sustainable growth," Rehn said.

Under a so-called excessive deficit procedure launched by the EU against Hungary, Budapest "must reduce its deficit to under 3.0 percent of gross domestic product in 2011," the commissioner insisted.

That would restore investor confidence in Hungary and also help Hungary meet the euro adoption criteria, Rehn said.