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Hungary says good-bye to the IMF

July 16th, 2013

A pro-government commentator thinks the government will eventually opt to repay the country’s outstanding debt to the IMF ahead of schedule, as such a feat would strengthen its position in the electoral race.

According to MNB (Hungarian National Bank) sources, Hungary has enough monetary reserves to pay back the rest of the bailout loan taken out by the Socialist government in 2009. The decision will be taken before the end of the summer, but MNB Chairman György Matolcsy has already asked the IMF to close its Budapest office, which is widely interpreted as proof of the government’s intention to demonstrate that it does not need external assistance in managing public finances.

In his Magyar Nemzet editorial, Tamás Nánási thinks the very fact that Hungary’s main concern is whether or not it is worthwhile to repay the IMF loan ahead of schedule is proof of the government’s excellent economic performance over the past three years.  As the crisis in the Euro zone deepens, and global debt amounts to 341 per cent of global GDP, and as Italy, Portugal and Greece face grave economic problems and political uncertainties, Hungary can freely decide whether to finance its debt from the markets or keep servicing the IMF credit. For the moment, IMF money is cheaper than borrowing on the market, but since yields on government bonds shrink steadily as Hungary’s rating improves, he speculates that they might sink even below the rate on the IMF loan. If Hungary were to pay back its IMF debt ahead of deadline, such a demonstration of self-sufficiency might make Hungarian bonds even more attractive and government borrowing cheaper, Nánási continues. The final decision may be heavily influenced by political considerations, he concludes. The race for next year’s elections will begin in the autumn, and the left wing opposition would have a hard time explaining why they oppose a government that pays back a debt taken on by previous Socialist administrations.

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