Hungary's government said on Wednesday it might moderate some widely criticised policies to please international lenders and reach a deal to prevent its currency and bonds from going into meltdown.
Since sweeping to power in 2010, Viktor Orban's conservative Fidesz party has tightened its grip on the media and the top constitutional court, taken over private pension funds and dismantled an independent budget oversight body.
It has also fallen out with the International Monetary Fund and European Union over a law curbing the independence of the central bank, jeopardising aid talks and frightening investors who say a bailout is necessary to stop markets freezing up.
Top Hungarian officials acknowledged on Wednesday that a deal was urgently needed and signalled they were open to making concessions on some policies although they would go it alone if no deal was reached.
We are ready for talks without preconditions, all issues can be on the table, Minister Tamas Fellegi was quoted as saying in the weekly Figyelo.
State secretary Gyula Pleschinger, another member of the negotiating team, said Hungary aims to reach an agreement on a credit line with the IMF and the EU to act as a safety net.
As we have announced to the markets that we intend to sign an agreement with the EU and the IMF, if we could not reach a deal that would be a bad message to markets, Pleschinger told Reuters.
The comments came after Hungary cancelled a bond swap auction because borrowing costs have become too expensive.
The forint currency has plummeted to new lows and the price of insuring Hungarian debt has soared since the ruling party won backing for the law curbing central bank independence last week.
In the biggest protest so far against the government, 30,000 Hungarians took to the streets on Monday to protest against what they see as Prime Minister Orban's moves to weaken democratic institutions and cement his party's powers.
Angry demonstrators denounced Orban, 48, an Oxford-educated lawyer who came to national prominence with a call for free elections and the removal of Soviet troops as communism fell in 1989, as a Viktator.
I'm worried, I see difficulties towering ahead of us, said Gergely Nagy, 23, a student in Budapest. Our leaders have made irrational decisions which put the country on a bad course.
Orban, 48, transformed Fidesz from a liberal to a conservative party and he remains an anti-communist hero to many right-wing voters.
His two-thirds parliamentary majority in 2010 is the strongest since the collapse of communism, but support among voters has halved as the economy has run into deep trouble.
Talks on a multi-billion dollar aid deal collapsed last month in a row over the central bank legislation. European Union officials, who are also struggling to contain a debt crisis in western Europe, had repeatedly told the government to withdraw the law.
Fellegi will visit Washington for talks with the IMF next week and then go to Brussels. He is also planning trips to Germany and France to make sure the discussions go smoothly.
The officials said Hungary would still manage to finance itself on financial markets if an agreement is not reached.
But Hungary, which faces a possible recession, must roll over nearly five billion euros worth of external debt this year on top of forint maturities as it begins repaying an IMF/EU loan that saved it from financial collapse in 2008.
Investors say IMF and EU support is crucial to winning back confidence and keeping market access open.
I think the slide in markets can be stopped only by news of a start in official (IMF/EU) negotiations in a way that there is a clear prospect of an agreement, said analyst Sandor Jobbagy at CIB Bank in Budapest.
Looking at the market and the reaction of bigger investors, I see no other way than to reach an agreement.
Fellegi said on Wednesday at this moment there was no need to draw on any new IMF or European Union funding. The government still has some assets left from its $14 billion (8.97 billion pound) pension grab and the first international bond expiry is due only in July.
However, sharp falls in the value of Hungarian assets and criticism of the government's policies from the international community have ratcheted up the pressure to act.
Standard & Poor's and Moody's downgraded Hungary's credit rating to junk late last year while Fitch, the only major rating agency to keep Hungary in investment grade, has pinned its next step on the outcome of the IMF/EU talks.
The forint dropped over 1 percent against the euro on Wednesday to a record low of 320.35 per euro and five-year credit default swaps jumped to a record high of 686 basis points
The forint's weakness is also hurting Hungarian households saddled with trillions of forints worth of foreign currency debt, mainly in the volatile Swiss franc, which scaled a five-month high to the forint on Wednesday.
There are also fears that Hungary's woes could impact other countries in the region, particularly against the backdrop of the euro zone debt crisis, but there has been little sign of contagion so far.
(Additional reporting by Sandor Peto and Krisztina Than; Writing by Anna Willard; Editing by Giles Elgood)