BUDAPEST, Hungary (AP) — Hungary struggled through a poor bond auction Thursday and its top financial negotiator said his nation was open to working out a standby loan with the International Monetary Fund.
Negotiator Tamas Fellegi insisted that Hungary was still able to finance its debts from the markets — but that time appeared to be rapidly evaporating.
Hungary's debt management agency sold less than the full amount on offer at an auction of 12-month Treasury bills, with the average yield rising to 9.96 percent — more than 2 percentage points higher than at a similar auction Dec. 22. That is also significantly higher than the 7 percent level that forced three other European nations to seek bailouts.
With Hungary's credit rating cut to junk status by two U.S. ratings agencies and possible recession looming in 2012, the Central European nation's finances are on the edge. It has been hard hit by the debt crisis in the eurozone — by far its biggest export market — and the government has struggled to boost economic growth amid anemic domestic consumption and large debt burdens in both the public and private sectors.
Adding to its woes, Hungary has been in a standoff of late with international financial institutions over a new law that reduces the independence of its central bank.
"I can negotiate a safety net for Hungary, a financial solution with reasonable conditions we can agree to. This was never in doubt," Fellegi said.
"The determined will of the government is to achieve a fast agreement" with the IMF and the European Union, he added. "The government is aware of the severity of the situation and what is at stake in the IMF negotiations."
The country's currency, the forint, hit a new low early Thursday at over 324 per euro, but recovered slightly after Fellegi's news conference. It was still under pressure at around 320 per euro at mid-afternoon in Europe.
Analysts said Fellegi needs to act fast.
"The alternative to an IMF-EU financial aid package appears dire," said a report from French banking group BNP Paribas.
Without an agreement offering Hungary some euro15 billion ($19.5 billion) to euro20 billion ($26 billion), "Hungary would find it difficult to repay maturing external sovereign debt or refinance it on the market at a reasonable cost," the bank said.
Fellegi said he would travel to Washington next week to hopefully conclude preparatory talks with the IMF, but it seemed that a requested meeting afterward in Brussels with EU Economic Affairs Commissioner Olli Rehn will not produce results.
"We could meet with them, mainly as a courtesy, but it will be clear that financial assistance will not be on the agenda," said an EU official, speaking on condition of anonymity to fully discuss the EU's position. The official dismissed as not credible Fellegi's comments about how Hungary can borrow money on the markets.
In 2008, Hungary accepted an IMF bailout of euro20 billion ($26 billion), but in 2010, under the leadership of conservative Prime Minister Viktor Orban, it chose not to renew the deal.
Fellegi's statements, especially that a standby deal was in the cards instead of just a basic safety credit line, pointed to a softening in the government's position that it was looking for a deal without forfeiting its independence on economic policy.
"Fellegi's words ... seem to have calmed sentiments somewhat," said analyst Gabor Ambrus at London's 4Cast, but added it was probably "just a minor respite."
Fellegi said Hungary would be willing to discuss all the issues — such as new laws seen curtailing the independence of the central bank — that have sparked strong criticism from the IMF and the EU.
"We are ready for unconditional talks," Fellegi said. "Any contested issue ... can be solved at the negotiating table."
Preliminary talks with the EU and the IMF last month in Budapest ended prematurely because of the lenders' concerns about new laws seen as limiting the central bank's independence. The independence of central banks is a clear tenet in the EU treaty.
"(This is) not just a concern for the Commission," said EU spokesman Olivier Bailly. "It's a concern for the IMF and the European Central Bank ... it's also a concern for the markets."
He said Hungarian authorities need "to decide how they want to reassure the international partners and the markets about ... the legal environment in Hungary."
In a letter sent Thursday to ECB President Mario Draghi, Hungarian Economy Minister Gyorgy Matolcsy insisted that amendments made to the central bank law last week as requested by the ECB ensured that it was "fully compatible with the EU legislation."
While listing changes made to the law, however, Matolcsy did not fully address some of the ECB's objections, especially about the plan to merge the central bank with Hungary's financial regulator and the larger influence gained by politicians in naming high-ranking central bank officials.
Gabriele Steinhauser and Don Melvin in Brussels contributed to this report.