Hungary May Have to Give in to IMF Conditions for Loan
23 November 2011
, by Agnes Lovasz (Bloomberg)http://www.bloomberg.com/news/2011-11-22/hungary-may-have-to-bow-to-imf-conditions-to-access-financial-assistance.htmlExcerpt:Hungary’s government may have to reverse its position on ruling out International Monetary Fund conditions in exchange for financial aid, according to Barclays Plc, Goldman Sachs Group Inc. and Capital Economics Ltd
Prime Minister Viktor Orban last week abandoned his policy of shunning the Washington-based lender, seeking help after a Standard & Poor’s threat to downgrade Hungary’s debt to junk sent the forint to a record low. He may have to do another reversal and scrap emergency taxes on some industries and ease the burden of a mortgage-repayment plan on banks, said Neil Shearing, an emerging-markets analyst at Capital Economics.
The government has scrapped two debt sales and reduced the size of another eight auctions in the last three months as the euro region’s debt crisis deepened. The threat of market turmoil may force Orban to back down from insisting on an IMF agreement that won’t infringe on the country’s “economic sovereignty,” Barclays Capital economist Christian Keller said.
“This seems to create a conflict between what Hungary wants and what is realistically available,” Keller, Barclays’s London-based head of research for emerging Europe, the Middle East and Africa, said yesterday by phone. “They are having serious financing challenges.”
The forint has lost 14% against the euro since June 30, the second-worst performance globally. It dropped today on concern investors will shun assets of countries most at risk of contagion from the euro crisis after Germany failed to sell all the bonds it offered at an auction today. The currency fell 1.9% to 310.61 per euro as of 4:01 p.m. in Budapest, eroding its gain since the government approached the IMF to 1%.
“Until the government wakes up and surrenders some sovereignty to the fund or outside anchors, the forint is not going to turn around,” Tim Ash, head of emerging-market research at Royal Bank of Scotland Group Plc, wrote in an e-mail today. The markets “are worried over the lack of a policy anchor.”