Hungary seeks talks to secure help from IMF

AP News
Posted: Nov 17, 2011 3:10 PM
Hungary seeks talks to secure help from IMF

Hungary is looking for more help from the International Monetary Fund as it looks to shore up its finances in the face of a widening European debt crisis and worries over its own credit rating.

In a big reverse of recent policy, Hungary's economy ministry said Thursday it's looking for a "new type of cooperation" with the Washington-based Fund but insisted that it wasn't looking for another loan.

The IMF said it had not yet received a request from the Hungarian government to initiate talks.

In the past week, Fitch and Standard and Poor's warned that Hungary's economic prospects have deteriorated, thereby putting the country on notice for a ratings downgrade. Hungary is a member of the 27-nation European Union but is not one of the 17 countries that use the euro currency.

Despite efforts to reduce the budget deficit _ it's around 74 percent of national income _ Hungary's debt burden is one of the highest in Eastern Europe, while its high dependence on foreign financing makes it one of the most vulnerable in the region.

The ministry did not provide details of the agreement it was seeking with the IMF, saying in a statement only that it would not be a loan but an "insurance policy which increases investors' security in Hungary." That suggests that Hungary may be looking for some sort of credit line from the IMF.

Hungary received a $25.1 billion IMF-led bailout in 2008, during the previous Socialist-led government. Current Prime Minister Viktor Orban, whose center-right Fidesz party secured a two-thirds majority in the 2010 elections, decided not to renew a standby loan agreement last year.

As recently as Monday, Economy Minister Gyorgy Matolcsy said that "this three-letter institution is opposed to every single one of our steps," repeating the government view that its "unorthodox" economic policies are not compatible with the IMF's usual recommendations.

Orban and Matolcsy have often said they preferred not to have a deal with the IMF _ even though the market consensus was that such a "safety net" would boost investor confidence _ because the lender would impose austerity measures which the government is unwilling to implement.

Instead, Hungary has looked to raise taxes on the banking, telecommunications, energy and other sectors, and has nationalized some $14 billion of assets formerly managed by private pension funds to help it achieve its strict budget deficit targets.

Iryna Ivaschenko, the IMF representative in Budapest, said the IMF delegation currently in Hungary to conduct a review of the economy "is not a negotiating mission, but a mission to conduct the regular economic surveillance that the IMF performs for all member countries."