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Hungary reduces its foreign debt exposure

June 26th, 2011

The leading pro-government daily welcomes the measures being taken to cut back Hungary’s foreign debt as ‘a historic shift of direction’ after four decades of relentless borrowing.

In an editorial in Magyar Nemzet, Anna Szabó reminds readers that Hungary’s debt has increased continuously for the past four decades: first the Communists tried to hide the complete failure of their economic model through substantial borrowing, while since the fall of Communism successive governments have financed their costly social programmes from abroad,  in order to win voters` support.

As a result, Hungary is inundated with foreign debt, which at present exceeds 20 550 billion forints (76 billion euro). Debt servicing now exceeds 1000 billion forints (3,7 billion euros) per year. The recent announcement by the government means that after nine years of relentless increase in the foreign debt, the tide has turned: using resources from the now substantially reduced private pension funds, the ratio of debt to GDP has been reduced from 82 to 77 percent. This means that the country has to spend 100 billion forints less on debt-servicing.  (A study of the country ranking in the London-based Economist reveals that Hungarian bonds even today carry much higher interest rates than those of Italy or Spain for example, even though the Hungarian budget is in much better shape than that of either country. Yet when it come to buying Hungarian debt, foreign investors become cautious, due to a loss of confidence in previous governments).

Szabó contends that all this will now change, although not fast; it will take about 10 years for country`s foreign debt to be brought back down to 2002 levels.

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