Hungary Unveils Growth Plan
Wall Street Journal, 28/7/2010
By MARGIT FEHER
BUDAPEST—Hungary’s financial state is stable, predictable and looks secure even without the International Monetary Fund’s support, Hungarian Prime Minister Viktor Orban said Wednesday, as the government announced a plan to boost economic growth and create jobs.
«Hungary’s external ties are strong enough that our financing is secure without the IMF,» Mr. Orban said in a speech.
The weakness in the Hungarian forint and government bonds proved to be a temporary reaction to the country’s break with the IMF, and the consequent warnings from rating agencies that they may downgrade the country. Both have stabilized, Mr. Orban said. «Thus it makes sense to pursue our current politics.»
Talks between the Hungarian government and the IMF and European Union broke down earlier this month, after Hungary refused to implement further austerity measures and modify its punitively high financial sector tax in exchange for access to the remainder of its €20 billion ($26 billion) standby credit line.
Credit rating agencies Moody’s and Standard & Poor’s warned in response that they could downgrade Hungary’s debt ratings.
Mr. Orban said, without providing further details, that «one or two» such steps from rating agencies are still in the pipeline. Mr. Orban has repeatedly said that Hungary plans not to rely on IMF support any longer, getting financing from the markets instead.
Hungary faces its first long-term debt sale Thursday since the collapse of IMF-EU talks. The government bond auction will likely attract high demand and is expected to be successful, mostly because of favorable market sentiment, a local bond trader said.
But Raiffeisen Bank warned Wednesday that the forint may face a fresh wave of selling and that its recent recovery was due solely to a rise in global risk appetite. In contrast, the risks associated with Hungary have risen significantly since the IMF talks came to a halt, it added.
Due to its lax fiscal policy and high external debt, Hungary was the first EU state to secure financial help from the IMF and the EU. As Hungary’s previous, caretaker Socialist government carried out strict austerity measures, investor sentiment toward Hungary recovered.
The country hasn’t drawn on its IMF-EU credit line this year as has been able to find financing through markets. Due to its reserves and issuance so far this year, the country’s financing appears secure for the rest of this year.
Mr. Orban repeated Wednesday that Hungary will stick to its target of a 2010 budget deficit equivalent to 3.8% of gross domestic product.
Hungary’s Fidesz party government, which swept to power in a landslide victory in April, on Wednesday published its economic plan, which focuses on supporting small and midsize companies to boost growth and create more than one million jobs over the next 10 years.
The «Szechenyi plan,» named after a 19th-century Hungarian statesman, plans to boost growth in a number of key areas, including health, construction and transport. The plan «will be based on shared risks among businesses, local councils and the government,» with the latter financing its part from EU support money, the National Economy Ministry said in a statement.
«Creating jobs in massive numbers is the essence of this program,» Economy Minister Gyorgy Matolcsy said.