Hungary is drawing up proposals to help borrowers whose foreign currency-denominated loan payments rose as the forint weakened, Prime Minister Ferenc Gyurcsany said. The government is in talks with banks and will present proposals next week that will “significantly ease” the burden of borrowers, Gyurcsany said today in a public television interview. The forint has been battered along with Hungarian stocks and bonds as investors sold off riskier emerging market assets. Foreign currency borrowing by local businesses and consumers, along with slower growth and a wider budget deficit than elsewhere in eastern Europe, make the country a target, economists said.”

This is the bail-out Hungary will need, a battery of measures to help those with CHF mortgages pay-down their debt, or transfer them over to (subsidised) HUF ones. Hungary, given the fiscal straightjacket she is now in, and the very large costs of population ageing that are now about to hit simply is not able to generate the resources to make this transition alone, and that is why the IMF will have to help.

Yes, we absolutely agree on this. In fact I quoted this very point in a piece on my Hungary blog yesterday, a piece which was precisely to argue that Hungary’s long term future looked a lot worse – unfortunately – than Iceland’s (and the post is now up on this blog).

“With respect, I think the comments on this blog have greatly overstated Hungary’s reliance on the IMF in the current crisis. In particular, the statement in one headline that Hungary is in IMF receivership is a gross exaggeration.”

Well, I guess that would be me your are talking about. Thank you for your thoughtful contribution, but forgive me if I beg to retain my point of view and differ.

I don’t agree that I am overstating the very difficult situation now facing the Hungarian economy, although I do agree that the term “receivership” does smack a bit of poetic license (although this is after all a blog).

I do think Hungary is now in the hands of the IMF, and it could be quite a long day before it is able to come out again. I do believe there is some sort of validity in the use of the receivership term, since I do think there will have to be a default at the end of the day here, but it won’t be a sovereign default, but rather a default by Hungarian households who will no longer be able to pay their Swiss Franc mortgages as the HUF fall to a more sustainable and realistic level.

Hungary now can only live by exports, and it is stupid, as it was in the case of Argentina, to try to impose a strong currency on a country which needs a rather weaker one.

As I say, I doubt there will need to be any kind of sovereign default, so it is not a normal kind of bankruptcy. The main victims of the loses incured would appear to be west europen banks like Austria’s Erste Bank, Italy’s Unicredit, or Belgium’s KBC Group all of which have been lending heavily in Swiss Francs.

If you want more argumentation on all of this, read the mammoth post I will be putting up on Hungary tomorrow morning, or the version of it I already have up on my Hungary Economy Watch blog.