Published : Nov. 18, 2011 - 20:43
BUDAPEST (AFP) ― Hungary said Thursday it was seeking a new deal with the International Monetary Fund, in what would mark a U-turn from its earlier stance, but the financial institution denied talks were under way.
Hungary got a 20 billion euro ($27 billion) bailout from the IMF and the EU in 2008 but, after some progress, it has come under increasing pressure to calm nervous investors and halt the depreciation of the forint.
“Within the regular annual economic policy consultations with the IMF, we have launched negotiations about this new type of cooperation,” the government said in an English-language statement.
The cooperation, “unlike the old one, would not increase government debt as we do not take out a credit, but we will make an insurance contract in order to increase the safety of investors in Hungary,” the statement said.
It added that the new instrument “would increase our financial and economic independence instead of hindering it like the old one.”
In its reaction to the announcement, the IMF denied that discussions were under way.
“The mission for the Article IV consultation is not a negotiating mission, but a mission to conduct the regular economic surveillance that the IMF performs for all member countries,” the IMF’s representative to Hungary, Iryna Ivaschenko, said in a statement.
“The IMF has not received a request from the authorities to initiate negotiations on a Fund-supported program,” she said.
The Hungarian National Bank stands in Budapest. (Bloomberg)
Ivaschenko said the IMF team that was currently in Budapest for regular annual consultations and the second review under a loan program monitoring of the Hungarian economy.
Financial markets initially reacted positively to the announcement of turning to the IMF.
The forint, which slumped to record lows against the euro on Monday, jumped to 306.89 from 314.99 to the euro. The direction of forint however changed following the IMF declaration, dropping to 307.73 by 1800 GMT.
The benchmark index of the Budapest stock exchange closed after a 3.83 percentage point hike.
At the same time, the price of insurance against a Hungarian default ― indicating investor confidence in investing in the country ― fell to 592 points from 607.
Analysts who had earlier urged a deal with the IMF in turn estimate that a cooperation might “buy time in the market,” Royal Bank of Scotland analyst Timothy Ash was quoted as saying by MTI.
The Hungarian Banking Association on its part said a new agreement was “not only necessary in the economic environment at present, but ... an absolutely useful step that could support stability and development in the coming period.”
Prime Minister Viktor Orban has up to now refused to seek help from the IMF, insisting that his country could finance itself from the markets.
Official figures Wednesday showed, however, that Hungary’s total debt had risen to 82 percent of Gross Domestic Product by September from 75 percent at the end of June, which the authorities blamed on a weakening forint.
Hungary has suffered from the eurozone debt crisis as well as the economic policies pursued by Orban’s centre-right government, which has made investors wary, analysts say.
Since coming to power in April 2010, the government has levied huge taxes on various sectors to fill budget holes caused by falling domestic consumption and an income tax cut, and effectively nationalized 11 billion euros in assets held by private pension funds.
It also introduced a contested scheme to allow those people who had taken out foreign currency loans to repay their mortgage loans at below-market exchange rates, forcing the lenders to take the resulting losses.
Analysts predict Hungary will have the lowest growth among the 10 European Union newcomers who joined the bloc in 2004, with just 0.5-percent growth in 2012. Some have even predicted a recession.
Credit rating agencies Standard and Poor’s and Fitch have warned that Hungary’s outlook is clouded.
Hungary is rated one notch above non-investment grade and a cut to junk status would make the financing of its sovereign debt more expensive and difficult.
The country has already experienced difficulty finding investors willing to buy its debt, with several bond auctions cancelled in recent weeks.