Hungary's indebted municipalities need at least a three-year moratorium on principal repayment on their foreign currency-denominated loans, Jenő Schmidt, the head of local government alliance TOOSZ, said in daily Népszabadság on Friday.

Schmidt called for assistance from the central government, and said that if the government "plans to centralize some local tasks, it could just as well take responsibility for their debt service."

The government should start negotiations with banks on rescheduling the repayment of municipal loans, Schmidt said.

MOSZ, another association of local governments, on Wednesday said it was asking the prime minister in a letter to intervene with banks in the interest of achieving a one-year moratorium on principal repayment of foreign currency-denominate loans. "Informal talks have confirmed that lending banks are open to such an agreement with local councils," MOSZ said in the letter.

Hungary's local councils have outstanding debt of HUF 1,200 billion of which about HUF 600 billion was issued in the form of bonds in 2006-2008, but mainly in 2007, MOSZ chairman György Gémesi told MTI on Wednesday.

Most of the bonds had 20-year runs with three-year grace periods, thus principal payments will be due on many this year, he said. Many of the bonds were denominated in Swiss francs, and that currency's "brutal" exchange rate to the forint will require many local governments to seek assistance to avoid defaulting, he explained.

About 85% of municipal bonds were denominated in foreign currency at the end of March, the latest National Bank of Hungary data show. About 89% of the bonds were subscribed by domestic banks. The rest were held by foreign entities.