Hungary minister eyes monetary not fiscal stimulus-UPDATE 1

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Friday September 03, 2010 11:57:09 AM GMT

* Economy minister rules out new IMF loan

* No room for fiscal stimulus, tight fiscal policy needed

* Pledges "sweeping" structural reforms in 2011-12

* Points to monetary stimulus used in other major economies

(Adds more comments, detail, background)

By Gergely Szakacs and Krisztina Than

BUDAPEST, Sept 3 (Reuters) - Hungary has no room to bolster growth with more budget spending but the central bank can use financial market instruments to stimulate the economy in the way other major central banks have done, its economy minister said on Friday.

Speaking at a business forum, Gyorgy Matolcsy also reiterated Budapest does not intend to sign a new financing deal with the IMF as the country's debts can be safely financed from markets in coming years.

He also banged home the message that the new centre-right Fidesz government would pursue tight fiscal policy and meet its 2010 budget deficit target of 3.8 percent of GDP.

"We need to stimulate the economy in 2011-12," Matolcsy said. "But there is no room for fiscal stimulus. There is no room whatsoever and the Hungarian government does not even try anything that would harm the deficit of the budget, by leading the Hungarian economy towards artificial budgetary expansion."

"This does not primarily mean exchange rate and interest rate tools, but instruments used in the field of financial market operations, which are used otherwise by the Fed, the ECB and the Bank of England as well."

He said Hungary's central bank did not share his view that such stimulus was possible.

The government has replaced the top officials at nearly all the main public institutions with its own candidates since taking office and has stepped up pressure on central bank Governor Andras Simor to resign over what it calls serious policy errors.

The ruling party also attacked Simor over some of his private investments and cut central bankers' salaries from Sept. 1, despite objections from the European Central Bank. Simor has said he will serve out his mandate, which expires in 2013.

REFORMS

Hungary's new government surprised markets in July when its talks with the IMF and EU about a review of the country's existing funding deal collapsed.

Most analysts said a new deal with the IMF would act as a financial safety net and anchor fiscal policy, boosting Hungary's appeal for investors, even if the country does not need to resort to IMF funds again.

"Hungarian public debt has a balanced maturity structure, which is very good news, it can be financed entirely in the 2011-13 period from financial markets," Matolcsy said.

"The Hungarian government does not want a new loan agreement (with the IMF), we do not want one, because we not need one.

"We will remain strategic partners with the IMF... there will be a round of talks in October but that will not be about renewing the loan agreement," he added.

Matolcsy also said Hungary had to prepare for the possibility of a global double-dip recession and he did not expect a turnaround towards sustainable growth in the global economy and in Europe until the second half of 2012.

"We have passed the economic and financial trough, but to achieve dynamic growth from 2013, we need...reforms now," Matolcsy added.

Matolcsy also said Hungary would promote reform, economic coordination and financial reform in the first half of 2011 when the country will hold the EU's rotating presidency.

"We will spearhead the economic and financial reform within the European Union."

(Reporting by Krisztina Than and Gergely Szakacs; editing by Patrick Graham)

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