Hungarian Prime Minister Viktor Orbán requested 'precautionary aid' from the EU and the International Monetary Fund yesterday (21 November), saying Hungary was seeking "a kind of insurance policy" against possible future financing difficulties.
"There is no figure," said Amadeu Altafaj, spokesperson for Economic and Monetary Affairs Commissioner Olli Rehn.
"This is a request for possible assistance and it is not quantified at this stage," he told the Brussels press on Monday (21 November).
Dow Jones newswires quoted sources from the banking sector as saying that Hungary was probably seeking a credit line worth €6 billion to €12 billion over the next 12 months. Népszabadság, a Hungarian newspaper, quoted an unnamed politician from the governing party saying the agreement with the IMF would not exceed €4 billion.
The decision of the Hungarian authorities to resort to the IMF may appear surprising. When the global financial crisis broke out in 2008, Hungary was the first EU country to seek a rescue plan, negotiated with the EU and the IMF (see background).
But Hungary severely strained its relations with the IMF last year, when Budapest rejected demands for tough measures to keep the budget deficit on target.
Hungarian media quoted Orbán as saying his cabinet sought a kind of insurance policy against possible future financing difficulties.
He stressed, however, that he was not going to give anyone "a free hand" in limiting his country's economic sovereignty.
Asked whether the IMF will set conditions to the loan, he replied “we will see”. At the time Orbán took office in 2010, Hungary was in worse financial straits than Greece and the IMF was telling the government "what to do”, the prime minister said.
China or Saudi alternative?
He also appeared to suggest that Hungary may turn to China or Saudi Arabia for support. “If we need money, we will issue bonds. The only problem is that we have to pay higher interest rates. We can reach an agreement based on national independence and economic self-interest, if we also consider China or Saudi Arabia,” Orbán was quoted as saying.
Economy Minister György Matolcsy said the new EU-IMF agreement was necessary because Hungary’s financial balance has been restored and now the country needed to grow.
“The question is: are we capable of [economic] growth,” he said, quoted by the Hungarian press agency MTI.
Matolcsy was categorical that his country no longer needed IMF support to finance government debt. He even said Hungary had a chance to keep the budget deficit below 3% of GDP, one of the four Maastricht criteria to ensure the stability of the euro.
However, Hungary is far from attaining the Maastricht criteria on the level of debt, which stands at 82% of its GDP and is the highest among East European EU newcomers. The ratio of government debt to GDP must not exceed 60%.
Hungary is also vulnerable on exchange rates and inflation. Hungary's forint has plunged in last days, and if any, improvements of the balance of payments are a result mainly of a controversial dismantling of the country's pension system. Last December, Hungarian lawmakers voted to roll back a 1997 reform of pensions, effectively allowing the government to seize up to €10 billion in private pension assets to cut the budget deficit.
Reacting to the Hungarian government request for financial assistance from the European Commission and the IMF, MEP and UKIP Leader Nigel Farage said:
"Hungary falls, another one bites the dust. This eurozone crisis has got so bad that even non-eurozone countries are asking for assistance.
"Coupled with Moody's warning over French credit rating, this is another bad day for the EU's economic prospects."
Crisis-hit Hungary was the first EU country to benefit in 2008 from a European facility worth up to €12 billion to address the financial turmoil.
The EU's support for Hungary comes in conjunction with a wider €12.5 billion rescue plan agreed with the International Monetary Fund to help restore the country's economic stability [more information].
In April 2010, Hungarians voted overwhelmingly for a radical change, sending the ruling socialists into opposition and giving the centre-right a qualified majority in parliament.
The election marked the biggest victory for any political party at a general election since the fall of communism 21 years earlier. However, several measures put in place by the new government have since fuelled controversy (see 'More on this topic').
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