Hungary's Currency At New Low On Lack Of IMF Deal


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Salon Staff
January 4, 2012 6:36PM (UTC)

BUDAPEST, Hungary (AP) — Hungary's currency, the forint, fell to an all-time low against the euro Wednesday amid growing uncertainty over a new financial aid deal with international creditors and concerns over the government's economic policies.

Hungary's government is seeking a financial "safety net" from the International Monetary Fund and the European Union, but preliminary talks ended prematurely in December as the government pushed ahead with new laws seen as infringing on the independence of the National Bank of Hungary. Talks with the IMF are due to restart next week in Washington.

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Concern over the outlook for Hungary's finances have taken their toll on the forint. The euro rose to 320.18 forints shortly after midday (1100 GMT), surpassing the peak above 317 reached two months ago.

Investors are increasingly skeptical about the sustainability of the government's economic policy, which has drawn on "unorthodox" methods to ensure that the state budget deficit stays within EU guidelines.

Windfall taxes on banks, and other sectors such as energy, telecommunications and retail, as well as the nationalization of some $14 billion in assets managed by private pension funds were meant to avoid direct austerity measures and buy the government time until economic growth kicked in.

But the effects of the eurozone crisis and weak domestic consumption could cause a recession this year and Economy Minister Gyorgy Matolcsy was forced to revise the 2012 budget plan just days after it was presented to parliament near the end of last year.

Under the previous, Socialist-led government, Hungary received a bailout of euro20 billion ($26 billion) in 2008 as investors shied away from buying Hungarian debt. A similar situation could be playing out now, with yields on long-term Hungarian bonds rising to above 10 percent this week and the price of insuring Hungarian debt escalating to new highs.

"With problems likely to deepen in the eurozone and no sign that Hungary's policy credibility is improving, Hungarian assets look set to be in for a bumpy ride," said William Jackson, an emerging markets economist at Capital Economics in London.

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Prime Minister Viktor Orban's government decided not to extend the IMF deal in 2010 to keep its economic policies away from the IMF control, but carried out an astonishing U-turn in November saying it would seek aid, but no new loans, from the Fund.

Orban has remained defiant, saying last week that IMF negotiations were "important but not crucial" and that the country would be able to "stand on our own feet" if a deal was not reached.

But analysts have rejected such bravado.

"Hungary's government still seems to believe that it has room to negotiate or manage without the international lenders. They are wrong," said Gabor Ambrus of London's 4Cast. "Hungary's government needs to wave the white flag but it seems they are not yet willing to recognize this. The consequence will be enormous."

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Salon Staff

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