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Buying time

August 13th, 2011

Opinions diverge on who is to blame for the plight of the hundreds of thousands of Hungarians struggling with mounting debts denominated in foreign currencies, mainly in Swiss Francs. But commentators agree that their problem is a threat to the country as a whole.

From Friday (12 August) Hungarians indebted in Swiss Franc can choose to pay back their debt at a fixed rate (180 Forint /CHF, instead of the current rate, approx. 250 HUF/ CHF), which amounts to rescheduling part of their debt for three years. From 2014 on, they will have to start paying back the difference.

For the first decade of the new millennium, the Hungarian National Bank has kept its interest rates high, in order to curb inflation. Banks have reacted by offering credits denominated in foreign currencies, at significantly lower rates. Over a million Hungarians took up those cheap credits and are finding servicing their debt  increasingly difficult as the Franc is now worth over 251 Forints compared to 150 just three years ago.

Népszabadság describes the case of a wealthy Hungarian businessman, György Wossala whose company runs a 4 star hotel near Lake Balaton and now is in receivership after failing to pay back its debts in Swiss Francs. Róbert Friss writes in the left wing daily that Mr Wossala acted like the majority of those indebted in Swiss Francs (including local councils) by firmly believing in the future, and failing to predict an 80 percent shift in exchange rates. “Yesterday’s firm confidence has slipped away, and the economic-social net is falling apart” – concludes Népszabadság.  A few days ago, the paper urged the government to at least try to reassure all those indebted in Swiss Francs (BudaPost, August 11th )

In an editorial, Magyar Nemzet criticises the Socialist Party for urging assistance to the indebted, only hours before the government announced that it will build new homes for those who lose their property. The pro-government daily blames 8 years of Socialist governance (2002-2010) for diverting the Hungarian economy from the growth path established by the first Orbán government from 1998 to 2002. “In an effort to cut public spending, they abolished state-backed Forint credits and redirected borrowers to Swiss Francs. What they did not mention was that the unparalleled rate came with uniquely high risks,” – writes Magyar Nemzet. The right-wing daily admits that temporarily fixing the interest rates does not solve the problem and might not be the best solution, “but apparently it does buy them (the indebted) time”.

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