July 25, 2012 / 2:29 PM / 5 years ago

UPDATE 1-Hungary encouraged by IMF talks but still at odds-PM

* PM Orban gives first sign on tone of negotiations with IMF

* Says talks “encouraging”, differences on some details

* Expects IMF to set conditions, govt to respond in Sept

* IMF/EU to end visit on Wed, no formal verdict yet (Adds more comments from PM, detail, analyst)

By Gergely Szakacs and Marton Dunai

BUDAPEST, July 25 (Reuters) - Loan talks between Hungary’s government and an International Monetary Fund/EU team have been “encouraging”, Prime Minister Viktor Orban said on Wednesday, but differences remain with lenders over issues including a new tax on banks.

Central Europe’s most indebted country started talks on a financing backstop last week after an eight-month delay and analysts say an agreement later this year is crucial to prevent a local financial market blowout.

An IMF-led deal would likely lower Hungary’s high borrowing costs and shield the vulnerable forint currency amid a deepening euro zone debt crisis that has hurt appetite for currencies and debt in a raft of emerging markets.

Orban, whose centre-right government has spooked investors on policy in the past two years and by abandoning previous talks with the IMF in mid-2010, said issues still to be settled included a new tax on financial transactions.

“Of course, there were and still are differences in opinion about several details,” Orban told a news conference after a meeting with trade unions.

Orban met the IMF/EU mission on Tuesday. The delegation, which is due to end its visit on Wednesday, has not yet given any indication of the progress of the first round of negotiations.

Orban said he expected the lenders’ team to present its views on the 2013 budget and a detailed list of preconditions for financial assistance, which the government would then respond to in September.

Orban reiterated that his government’s intention was to conclude the talks successfully as soon as possible.

When asked about the transaction tax, which the European Central Bank on Tuesday said impaired the central bank’s independence, Orban said:

“The ECB voices its reservations... This gives me an opportunity to point out the difference between the EU’s crisis management and Hungarian crisis management. The EU protects banks while we protect jobs.”

Orban added that the transaction tax levied on banks and the National Bank of Hungary should create the funds which the government needs to pay for its job protection plan.

Analysts have said this signalled the road to an agreement would be bumpy.

“Given the government’s recent communication to stick to the levy on central bank operations the FTT (transaction tax) may be one of the major sticking points during the negotiations,” Citigroup analyst Eszter Gargyan said in a note.

The government passed the new tax in parliament earlier this month to finance social tax cuts next year.

The tax will be levied on commercial banks as well as on the central bank’s overnight facility and the two-week bills it sells to banks as part of its role in controlling money in circulation.

The ECB said on Tuesday that the tax could be seen as a way to finance the public sector from central bank money, thus violating European Union rules.

For a column on Hungary’s IMF talks see. (Reporting by Gergely Szakacs and Marton Dunai; editing by Patrick Graham)

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