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Monday, October 13, 2008

IMF To Step In With Rescue Package For Hungary

by Edward Hugh: Barcelona

Well, these are indeed troubled times. According to the latest news to come off the Reuters wires the International Monetary Fund has announced its readiness to offer financial and technical help to Hungary, effectively stepping in and providing support for an EU member state in difficulty at a time when the EU institutional and financial structure is already stretched to the limit. The EU has said it welcomes the intervention. Under the circumstances there really was little else it could do. This would now appear to set a precedent, and the Hungarian case may well be followed by the Baltics, Bulgaria and Romania in pretty short order I would say, looking at the speed with which things are happening.

"The Ecofin (EU finance ministers) welcomes the readiness of the IMF to consider providing technical and financial assistance as needed to Hungary," the executive European Commission and the EU's French presidency said in a joint statement.

Hungary has been hit hard by the global financial crisis since it has one of the most fragile economies in Europe due to the earlier high budget and current account deficits, its rapidly ageing and steadily declining population and the heavy ongoing reliance on external financing. The EU authorities have said they are in continuous liason with Hungary to try to ensure that any conditions attached to possible IMF aid are consistent with economic policies and objectives previously agreed to with the EU Commission.

The International Monetary Fund have issued a statement, which says it is “in close dialogue" with the local authorities and the European Union to discuss further responses to the current challenges, including possible technical and financial support by the IMF. The statement by IMF Managing Director Dominique Strauss-Kahn on Hungary is as follows:

“Against the background of global financial turbulence, Hungary's government securities market and some other key markets have experienced stress over recent days."

“These pressures emerged despite the country's improved macroeconomic and financial policies of the past years, which include a strengthening of its fiscal position, a narrowing of the current account deficit, and a cautious implementation of monetary and exchange rate policies."

“The authorities have responded to the recent turmoil in global markets through a continuation of their macroeconomic convergence program, coupled with enhanced monitoring of financial sector developments and increased deposit guarantees, which were augmented in line with an EU-wide move."

“To complement these efforts, we are in close dialogue with the Hungarian authorities and the EU to discuss further responses to the current challenges, including possible technical and financial support by the IMF."

“I have informed the authorities that the IMF stands ready to assist their efforts. We will provide technical assistance as needed and, in the context of a supportive policy setting, are ready to undertake discussions on possible financial assistance, responding rapidly."

More detailed background on the Hungarian crisis, and regular updates as events develop can be found on my Hungary blog.