IMF To Step In With Rescue Package For Hungary

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.

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

8 thoughts on “IMF To Step In With Rescue Package For Hungary

  1. Hi,

    “Interesting contrast with the Fund’s complete official silence on Iceland.”

    Well, I think the problem is at the Iceland end. The IMF need to be asked to step in (there are, remember, conditions). You loose a big chunk of your sovereignty for a time. Hungary didn’t really need to think twice given their fragility. Iceland are taking a bit longer, but according to the Reuters report below, they , may be near. Iceland, of course, is not in the EU, so there will be no protocols involved at that level, and no explaining to do to anyone else about why Brussels wasn’t able to help.

    When you look at the way the Russians were able to simply walze into Georgia with very little EU reaction, and now the way Hungary has been left to herself, I can imagine some citizens in the Eastern part of the union may be feeling just a little nervous at this point.

    A spokeswoman for the Icelandic government said on Monday she could not confirm whether the country had made an official request for financing from the International Monetary Fund (IMF).”I cannot confirm that,” the spokesoman told Reuters by telephone in response to a Reuters report from Washington which cited an IMF source as saying a request had been made. The official, who asked not to be named, said the IMF executive board met at the weekend to discuss the request by Iceland uynder the fund’s rapid response mechanism. That allows financing to be issued within 10 days.

  2. Well, this is a sort of disgrace for the Hungarian government. I think the situation of Iceland and Hungary are rather different: although both countries are small, Iceland is much smaller, its populations is not much more than Budapest’s 11th district. Hungary is within the EU and NATO, with proper veto rights and full membership, and destabilizing the country would have a very direct effect on Europe. Everybody was very nervous in Hungary today, but the situation looked to improve, after a speculative attack against the Budapest stock exchange on Friday it closed with a +12% today.

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