Budapest: Hungary's failure to obtain an international bailout loan wouldn't be "so significant" even after the country received its second debt downgrade to junk in a month, Prime Minister Viktor Orban said.
The European Union and the International Monetary Fund broke off talks with Hungary on an aid package a week ago, saying two bills lawmakers plan to approve this year may curb the central bank's independence.
European Commission President Jose Manuel Barroso in a letter asked Orban to withdraw the draft laws, which the Hungarian leader rejected in his reply.
"There is nothing in those laws to which he has the right or the means to object," Orban said in a HirTV interview on Thursday, noting for the first time that bailout-loan talks may fail.
"This whole thing isn't so significant. If we reach an agreement with the IMF, we have a safety net. If we don't, then we don't have one. The country will still stand on its feet and will continue to function."
The government asked for IMF aid last month to ensure financing next year as yields soared, debt auctions fell short of targets, the forint weakened to a record against the euro and Standard and Poor's signalled a potential downgrade.
An IMF-led aid package would bolster Hungary's policy credibility, S&P said on December 21, when it followed Moody's Investors Service in downgrading Hungary's sovereign credit to junk.
The European Commission hasn't decided whether to resume financial-aid talks with Hungary, the EU executive's representative in Budapest, Tamas Szucs, said in an email on Thursday. Hungary wants a "precautionary credit line" which it would only tap if "international money markets became paralysed", Orban said.
Insurance for credit-default swaps up
Hungary's five-year credit-default swaps, which measure the cost of insuring state debt against non-payment, rose 38 basis points to 609 on Thursday, the highest in more than three weeks and the ninth-highest in the world, according to data provider CMA, which is owned by CME Group and compiles prices quoted by dealers. "We may be headed for a catastrophic scenario, which is the inability to finance the economy or to do it at yields well into the double-digits which is unsustainable," said Daniel Bebesy, who helps oversee $1.5 billion (Dh5.50 billion) mostly in Hungarian government bonds at Budapest Fund Management.
