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Hungary downgraded to junk

November 28th, 2011

Left wing papers call for PM Viktor Orbán and National Economy Minister György Matolcsy to resign after Moody’s downgraded Hungary to junk status. There are striking differences of interpretation, meanwhile, between the two pro-government dailies.

Moody’s Investors Service downgraded Hungary’s sovereign rating by one notch to Ba1 from Baa3, taking it below “investor grade” on Thursday. Moody’s cited the “rising uncertainty surrounding the country’s ability to meet its medium-term targets for fiscal consolidation and public sector debt reduction” as well as “the increased susceptibility to event risk stemming from the government’s high debt burden, heavy reliance on external investors and large financing needs as the country enters a period of heightened external market volatility” as reasons for the downgrade. It came hours after Standard and Poor’s postponed a rating decision on Hungary until “likely before the end of February 2012”, because of a possible agreement with the International Monetary Fund and the European Union. The Hungarian government had announced a week earlier that it would seek assistance from the IMF and the EU as a precautionary measure.

Népszabadság wants PM Viktor Orbán and National Economy Minister György Matolcsy to explain how they managed to navigate Hungary to its current economic position over the past 18 months.

„They might act like children, covering their eyes and pretending that what you cannot see does not exist,” but the time has come to face the people – writes Brigitta Szabó in the left wing daily.

“National Economy Minister György Matolcsy hangs on to his crazy economic policy, despite criticism from all sides. He believes that the whole world has gone  mad, that it is crawling with speculators, while he talks about the biggest reconstruction effort in the country since the end of the Second World War, and simply cannot imagine that he might be wrong.”

Népszabadság also warns that neither foreign investment nor foreign capital seem to bring salvation to the country, as the only multinational companies which are expanding in Hungary are Mercedes and Audi, and there is no sign of the awaited influx of Chinese capital.

Another opposition daily, Népszava believes that it is time for Mr Orbán and Mr Matolcsy to resign. “They must leave, as the country cannot afford for them to carry on as they have consistently done since last year’s general elections.”

In the last 18 months the government has proved that it is unfit to fulfil the job it was mandated to do by the voters. Fidesz waited eight long years to get back into power. A lot of people believed that during those years they were preparing to lead the country better than previous governments. “After the elections it became clear that their only goal was to seize power and never let it slip from their hands again,” – Népszava editor Péter Németh suggests.
The country needs a government ready to abandon an economic policy which has failed and try to restore Hungary’s credit at home and abroad. You need credible and competent people to do that – Népszava argues.

The two pro-government dailies give diametrically opposed explanations of the events. Magyar Nemzet accuses Moody’s of intending to deprive Hungary of its economic independence. Anna Szabó, the paper’s chief business commentator claims that the rating agency was driven by its private interests “when lining up behind the speculators against the Forint and against government bonds.” She believes the banks are the best customers of the credit rating agencies, and Hungary is being punished because its government has laid a special tax on the banks, and is imposing a scheme on them according to which people can pay off their forex debt in Forints at a low rate.  Hungary’s bonds sell at a yield of almost 10 percent and the National Bank will have to raise its own interest rate, thus the banks which buy state bonds and deposit their money with the National Bank will be paid back all their losses. “No mercy”– concludes a distressed Anna Szabó.

As credit rating agencies normally follow one another’s lead, it is likely that Standard & Poor’s and Fitch Ratings will both downgrade Hungary in the coming months – warns Magyar Hírlap, reminding readers that these institutions are the most important points of reference for investors – whether Budapest likes it or not.

Hungary must push through the structural reforms set out in the Kálmán Széll Plan (Hungary’s structural reform program) and the Convergence Program and avoid all actions which cause hopelessness and insecurity – suggests Csaba Szajlai, who rejects conspiracy theories with regard the downgrading of Hungary.

“Moody’s decision will have a negative effect on everyday life, as less loan capital will stream in, while Hungarian capital will flow out,” – writes Magyar Hírlap, noting that downgrading is not a dramatic event in itself, the problem is rather that “there are no visible signs of a shift in economic paradigms.” In the absence of such a shift, Szajlai warns, a new credit line which will be negotiated with the IMF, important as it will be, will not be enough for Hungary to regain its earlier credit rating.

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