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September 22, 2017

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Recession-hit Hungary will reach IMF deal: Prime Minister Orban

BUDAPEST -- Hungarian Prime Minister Viktor Orban said Friday that Budapest will reach a deal on the IMF and the EU on aid but only on more favorable conditions, as official data confirmed the economy was in recession.

"We will reach an agreement with the International Monetary Fund and the European Union, but not with the conditions reported in the press on Thursday," Orban told national radio.

"The government will present an alternative proposition in the next seven to 10 days."

On Thursday Orban surprised financial markets by announcing on Facebook that he rejected the demands of the IMF and EU imposed in exchange for a stand-by credit line of some 15 billion euros (US$19 billion) currently under discussion.

According to the Magyar Nemzet daily, seen as close to the government, the IMF and EU's conditions include cutting taxes and benefits for families, introducing a property tax, cutting transport subsidies and annulling a bank levy.

Orban approached the IMF and the EU for help last year after Hungary's currency the forint fell sharply and the government's borrowing costs on financial markets soared just as the economy weakened.

Investors were spooked by a number of unorthodox economic policies such as the forced nationalization of state pension assets, "crisis taxes" on certain sectors and a scheme to help mortgage-holders that left banks with a large bill.

Hungary's sovereign debt ratings were also cut to "junk" status by the three main credit rating agencies.

But talks on the aid broke down in December because of unease over a raft of new legislation, especially a new central bank law that critics including the European Central Bank said endangered the lender's independence.

The government has since tweaked the legislation, allowing a visit in July by a delegation of the EU and the IMF described at the time by Orban as "encouraging," and for talks to resume the same month.

The national statistics office on Friday meanwhile said that the economy shrank by 0.2 percent in the second quarter compared to the first, confirming an earlier preliminary estimate.

Since gross domestic product had contracted by 1 percent in the first quarter, the data confirmed that Hungary is in recession, defined as two consecutive three-month periods of quarter-on-quarter negative growth.

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