Hungary repays IMF loan earlier than planned

viktor_orban Hungarian flag.jpg

Hungary repaid ahead of schedule yesterday (12 August) all of its outstanding debt, worth €2.15 billion euros, owed to the International Monetary Fund from a 2008 emergency loan programme, the Economy Ministry said in a statement.

The central European country, which used a €20 billion euro aid deal from the IMF and the European Union to avoid insolvency as the crisis gripped its markets in 2008, has been at odds with the Fund under its current government, which took power in 2010.

Prime Minister Viktor Orbán's government, which faces an election in 2014, has sought to end what is has portrayed as undue foreign influence over its economic policies.

The last instalment of the loan was due in the third quarter of 2014 and the early repayment saved 3.5 billion forints (€11.7 million) in interest expenses, the ministry said.

Shortly after taking office in 2010, Prime Minister Orbán abruptly ended that program as the government sought to control the country's financial affairs on its own. It initiated an unorthodox campaign that included Europe's highest bank tax and special levies on business (see background and related news).

Based on a summary by the country's debt agency, Hungary had been due to repay the equivalent of €913 million to the IMF in each of the third and fourth quarters and another €299 million in the first quarter of 2014, an election year.

Last month the Central bank chief György Matolcsy, Orbán's former economy minister, announced he would initiate closure of the IMF's resident representative office in Budapest, saying it was "not necessary to maintain" any longer.

Faced with a mounting debt problem, the centre-right ruling party Fidesz has pledged to cut the country's budget deficit below 3% of GDP in 2011, making it appear as a top performer in the EU.

But the methods used to achieve this goal have stirred controversy inside the country and now also at European level.

To get the budget within EU limits in 2011, the government is relying on unorthodox, one-off revenues, making markets fearful the fiscal gap will bulge again after 2012 unless more durable measures are introduced.

Bank taxes, "special taxes", "temporary taxes", nationalisation of private pension funds and levies on foreign businesses are all seen with growing scepticism by both public opinion and financial markets.

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