* PM Orban says IMF conditions "will not work"
* Orban says to work out "alternative" set of proposals
* Forint falls 1.5 pct, yields jump on comments
* Road ahead bumpy, deal only under market pressure
(Adds market reaction, background, analyst, edits)
By Gergely Szakacs and Krisztina Than
BUDAPEST, Sept 6 Hungary threw hopes for a new
loan to prop up its sagging economy into disarray on Thursday as
Hungarian Prime Minister Viktor Orban rejected what he called
unacceptable IMF conditions, crushing prospects for a fast
Orban, in a video posted on his Facebook page, cited demands
from the International Monetary Fund (IMF) for a raft of changes
that he said were too high a price for Hungary to pay.
"From cutting pensions to reducing bureaucracy to scrapping
the bank tax and the funds to be made available to banks,
everything is in there that's not in Hungary's interest," Orban
"The parliamentary group meeting (of the ruling Fidesz
party) took the view, and I personally agree with it, that at
this price, this will not work," he added.
The vulnerable Hungarian forint weakened by 1.5
percent against the euro on Orban's comments but later regained
some ground, buoyed by statements from the European Central Bank
that it would start a new bond-buying programme.
Orban, who in 2010 abruptly ended another IMF programme,
will only agree to a deal under severe market pressure and is
unlikely to back down on unconventional policies and agree to
painful spending cuts before elections in 2014, analysts said.
"We suspect that market turbulence may ultimately force Mr.
Orban to cede ground," Capital Economics said in a note.
"But in the meantime, today's news is likely to expose the
extent to which the recent rally in Hungarian assets has been
built on flimsy foundations."
For a column on the IMF talks please click
Orban's announcement came a day after he said he sought a
fast closure of talks in the autumn, but following a meeting
with his Fidesz party he said the lenders' conditions were
unacceptable and his government would work out alternatives.
"The list is long and can be read in the press," Orban said
in the video, referring to details of what he said the IMF was
demanding that were published earlier by the conservative daily
The list has not been confirmed by the IMF, which has been
unavailable for comment.
Local website Index.hu said, citing a document without
revealing its sources, said the IMF list did not contain calls
for pension cuts and had less specific recommendations, but
urged the abolition of a new transaction tax on the central
A source who asked to remain unnamed confirmed the Index
Proposals to change a flagship income tax system and cut
social subsidies would collide head-on with the economic
policies advanced by Orban, who has stabilised the budget with
unconventional measures such as Europe's highest bank tax.
Orban's Fidesz is still the most popular party but has lost
about half of its supporters since taking power and a recent
survey by pollster Tarki showed just one in a hundred people
asked thought the recession-hit economy was in a good shape.
To reverse that momentum, Orban is pushing a 300 billion
forint ($1.33 billion) job saving plan, partly funded by a new
tax on central bank operations, a key sticking point in the IMF
talks, which the European Central Bank has also criticised.
"The majority in government ... do not want a deal, will want
to play the Turkey card where possible, and will only accept a
deal under market pressure. No pressure, no deal, it's up to the
market," said Peter Attard Montalto at Nomura in London.
Turkey held stop-start talks with the Fund all through 2009,
keeping its investors hoping for a deal.
"Junk"-rated Hungary faces a repayment hump in the next five
quarters, with the equivalent of 4.6 billion euros falling due
from its previous IMF/EU bailout alone.
Analysts have estimated that at current forint levels and by
using its liquid reserves, the government could finance itself
from domestic issuance at least until the end of March 2013
without an IMF loan or tapping global markets.
(Reporting by Gergely Szakacs; Editing by Michael Roddy)