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Hungarian government under mounting press pressure

January 6th, 2012

The Forint stopped sinking on Thursday after a soothing statement by the Hungarian IMF negotiator. Prior to that statement, commentators from both right and left warned that the government should be more cooperative with the EU and the IMF in order to restore the confidence of international investors.

On Wednesday, January 4, the exchange rate of the Forint hit record lows against the Euro. Increasing fears about a possible sovereign default are indicated by the soaring CDS spreads and two digit interest rates on sovereign bonds. According to several analysts, international investors are turning away from the country because of the uncertainty about the IMF negotiations (see BudaPost December 31).On Thursday morning, the Forint continued to lose ground, until Tamás Fellegi, the cabinet minister in charge of negotiations with the IMF announced that all requests will be on the table and Hungary was ready to make concessions. Tamás Fellegi announced that the government would start official talks with the IMF as soon as possible. He added that there are no preconditions on the government’s side, which, however, does not imply that all the proposals of the IMF would be accepted. He also hinted that PM Viktor Orbán has authorized him to negotiate a possible stand-by agreement, which would require that the government meets the strict requirements of the IMF and also be subject to regular monitoring. By the time Fellegi spoke, newspaper kiosks were already brimming over with critical analyses.

The government seems to be untouched by the plummeting Forint and the rising interest rates on bonds, Népszabadság commented in a front page editorial. The left-wing daily criticizes the government for not doing enough to calm the markets and bolster the ailing Forint. Népszabadság notes that on Wednesday the Ministry for National Economy issued only a brief statement claiming that the market volatility is the result of rumours about the planned IMF agreement.

Hungary’s international standing has never been worse, Tamás Rónay asserts in Népszava, commenting on recent criticism from the EU and US (see BudaPost December 28). Rónay fears that the Orbán government’s uncompromising tone will end up isolating Hungary internationally.

In Index, Péter Magyari warns that the pressure from the EU and the IMF may have significant consequences. The commentator remarks that Berlusconi’s initial hesitation to comply with the conditions of the EU and the European Central Bank resulted in the resignation of the Italian PM. “The criticism coming from the ECB and the EU is reminiscent of the rejection Berlusconi experienced last year,” Magyari notes.

The government has no choice but to retreat from the political course it has been pursuing, suggests Gábor Stier in Magyar Nemzet. According to the pro-government columnist, it makes no sense to lament about the unjust criticism the Orbán government receives from the EU and the IMF, or blame foreign speculators. The government has to do whatever is necessary to restore the trust of the international actors in Hungary, Stier concludes. His is the second commentary to underscore the same message in this staunchly pro-Fidesz newspaper in as many days.

The restoration of the trust of the markets requires a deal with the IMF, Anna Szabó wrote in Magyar Nemzet on Wednesday. While stressing that the current panic is the result of external factors, including the slowing down of other EU economies, she notes that in order to dispel fears of insolvency, the government needs to reach an agreement with the IMF on a precautionary credit line.

Though the Hungarian economy is doing well, the government cannot ignore the depreciation of the Forint and the increasing interest rates paid on sovereign bonds, Csaba Szajlai contends in Magyar Hírlap. He notes that even if the macroeconomic processes are promising, Hungary will have a hard time financing its debt if it has to pay two digit interest rates on new loans.

Szajlai, a pro-government commentator in the right wing daily, is also a long time critic of the government’s economic policies (See BudaPost Archives). He believes that the current situation is partly the result of the confusing messages the government sends. Instead of blaming the markets and foreign investors, the government should realize that Hungarian economic growth is to a large extent dependent on multinational corporations, exports to EU countries, and foreign investors buying government bonds, Szajlai underlines.

The only way to restore confidence in Hungary is by complying with EU and other norms, he adds. Among others, the government should respect the independence of the National Bank, as requested by the IMF and the EU. If the government succeeds in convincing international actors that Hungary is a democratic state respecting European norms, confidence towards the country can be restored, Szajlai concludes.

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