HUNGARY is seeking more financial help from the European Union and International Monetary Fund, after a sinking currency and rising borrowing costs forced the government to rethink its staunch opposition to foreign assistance.
The EU and IMF announced yesterday that they had received a formal request from Budapest for “possible” support which, if granted, would be “precautionary” in nature.
No figures were revealed and analysts predict that negotiations could be long and difficult, given Hungarian prime minister Viktor Orban’s determination not to accept any outside interference in the running of the country’s ailing economy and the search for ways to revive it.
Hungary was the first EU member to take an emergency IMF-led bailout when, in 2008 under the previous government, it secured €20 billion to shore up its finances as the world’s credit markets seized up.
After taking power last year, Mr Orban’s populist centre-right Fidesz party abruptly scrapped talks with the IMF on extending the loan deal, and insisted it could raise money on the international bond markets and stimulate growth while resisting advice to cut spending and raise taxes.
Mr Orban boosted Hungary’s budget by levying special taxes on the financial, telecommunications and other sectors. He also forced banks to swallow losses on spiralling foreign-currency mortgages and nationalised most private pensions – moves which he said were aimed at helping poor Hungarians but which rankled foreign firms and raised eyebrows among economists.
Hungary’s forint currency has plunged in recent weeks, however, and the interest it must pay to borrow money has soared, amid rising expectations that one or more of the main ratings agencies will lower its credit status to “junk”.
The government has been further alarmed in recent weeks by failed bond auctions and a sharp climb in the cost of insurance against Hungary defaulting on its credit repayments.
Gyorgy Matolcsy, the country’s beleaguered economy minister, defended his record yesterday and blamed the euro zone’s travails for dragging down Hungary – eastern Europe’s most indebted nation, whose total debt is 82 per cent of its gross domestic product.
“The economic policy is undoubtedly successful thanks to the unorthodox, non-traditional but daring and unusual steps which restored the economy of the country,” Mr Matolcsy said.
He noted that the government had reduced the budget deficit to below 3 per cent of GDP for the first time since 2004 and brought unemployment under 10 per cent.
Analysts say improvements in the budget are due to one-off gains from the pension nationalisation and special taxes on business rather than fundamental reform of the economy.
Mr Matolcsy said the “protective shield” of the IMF would help Hungary ride out the euro zone crisis, but it is not clear what kind of deal the government is seeking.
Mr Orban has spoken of a “new type” of agreement with international lenders, insisting that “no one can limit Hungary’s economic sovereignty, that’s the basic tenet of the government’s philosophy . . . We want insurance and we don’t want to tie our hands.”