EASTERN EUROPE:HUNGARY WAS plunged into financial uncertainty yesterday with its currency and stock market falling sharply and bankers reporting credit shortages, as concern spread across eastern Europe about the impact of the global financial crisis.
In Budapest, the forint fell 5.3 per cent to Ft266.09 to the euro and the BUX index of leading stocks closed down 11.9 per cent, dragged down by a 15 per cent fall of shares in OTP, the biggest bank.
Currencies and stock markets also fell in Poland, the Czech Republic, Romania and Ukraine.
"You almost feel like crying," said one Budapest-based analyst. "You're sitting in front of a screen and you see it falling apart and you can't do anything."
The Hungarian turmoil followed moves by leading Budapest banks to stop or curtail foreign currency lending, the dominant form of credit in Hungary in recent years. Concerns then spread that the inflow of foreign currency would drop sharply, reducing the funds available for financing the country's current account.
Gyorgy Barcza, chief treasury economist at KH Bank, part of Belgium's KBC group, said: "If there is no foreign currency lending in Hungary, it will mean the capital inflow will be smaller. Currently that capital inflow amounts to about €3 billion to €4 billion a year, which is close to the current account gap."
Hungarian officials indicated that they were working on a package to support the markets with the help of the International Monetary Fund (IMF). But the central bank declined to give details.
Meanwhile, an IMF delegation was due to arrive in Ukraine late yesterday. Officials in Kiev said they were seeking to shore up confidence in their economy. But they insisted the economy remained in good shape, accusing western experts of exaggerating the risks facing Ukraine, and saying the IMF delegation would be in Kiev for a week, "to personally study the situation". Economy minister Bogdan Danylyshyn said: "Altogether, Ukraine's macroeconomic situation is not dangerous."
Economists suggested that Ukraine's government may seek a credit facility to fill a widening current account deficit left by sharp declines in the prices of steel; credit-financed import increases; and rising prices for gas imports.
In the first half of this year the deficit rose to 7.9 per cent of gross domestic product from 4.2 per cent last year.
Heavy borrowing by Ukraine's banking sector has swelled foreign debt to some $100 billion (€74 billion), according to July figures. Of this, just $15 billion is government debt. Foreign exchange reserves stand at $37.5 billion.
Citigroup emerging markets economist Ali Aleyd said: "External financing requirements for Ukraine next year could total $55 billion to $66 billion, assuming all maturing external debt must be repaid. I think Ukraine would benefit from IMF help to bring further creditability to the policy framework that is required to adjust the country's imbalances."- ( Financial Timesservice)
