Hungary’s government hastened to calm fears Saturday with assurances that the country’s public deficit was containable, after earlier statements that it faced similar problems to Greece.
“The Hungarian economy has healthy foundations and the deficit target of 3.8 percent of gross domestic product can be maintained for 2010 if we adopt certain measures,” a top aide to new Prime Minister Viktor Orban said.
Secretary of State Mihaly Varga was speaking at a hastily-arranged press conference two days after warning the deficit would be 7.5 percent of GDP this year.
Lajos Kosa, vice president of Orban’s centre-right Fidesz party, had also said the Hungarian economic situation was “very critical, the state is comparable to that of Greece” and that “the bankruptcy of the state is close.”
Their remarks sent the Hungarian currency, the forint, and the Budapest stock exchange plunging on Friday, and the cost of insurance against a sovereign default — credit default swaps — climbed.
Varga said Saturday that the government would be meeting in a special session this weekend and would announce various measures on Monday. In reference to Kosa’s comment, he said that “if colleagues compare the situation in Hungary to that of another country, it is unfortunate.”
The IMF said Friday that its new mission chief for Hungary, Christoph Rosenberg, would be going to Budapest on Monday “for a short visit to meet the new government and discuss the economic situation and prospects with senior officials.”
“The IMF staff looks forward to working with the new government and, as usual, will cooperate closely with European Commission staff who will also be in Budapest,” said a fund spokesperson.
Hard hit by the global economic crisis, Hungary received a 20-billion-euro (24-billion-dollar) rescue from the IMF, the World Bank and the European Union in November 2008. After tapping the IMF lifeline three times for a total of 8.7 billion euros (10.4 billion dollars), the government said in November 2009 that it no longer needed to draw on the credit thanks to improved investor confidence in the country’s economy and bonds.
Currently, 1.7 billion euros (2.0 billion dollars) in financing remains available and immediately accessible. IMF chief Dominique Strauss-Kahn, speaking at the G20 summit of top financial officials in Busan, South Korea, said he was “surprised” by the reports from Budapest, while the European Union’s Economic Affairs Commissioner Olli Rehn expressed scepticism.
He dismissed fears of a default, saying that Hungary had made major steps in recent years, in particular cutting its deficit by five percent between 2006 and 2009.
The 3.8 percent target was fixed by the previous Socialist government, in coordination with the IMF. Analysts have also suggested that Thursday’s warnings could have been made for political purposes as the government, which took power only last month, tries to convince the country to accept the tough decisions now needed to get the economy on track.
Budapest, June 4, 2010 (AFP)
