Hungary to get $25.1 billion in IMF-led aid deal
The news drove the benchmark BUX stock index to close up by a massive 14 percent and pushed the Hungarian currency the forint higher against the euro and dollar.
By Agencies |
BUDAPEST: Hungary's currency and stock market rose Wednesday after the country agreed to get an aid package of up to $25.1 billion (20 billion euros) from the International Monetary Fund, the European Union and the World Bank.
The IMF will provide a 17-month standby loan of $15.7 billion (12.5 billion euros), the European Union is ready to lend Hungary $8.1 billion (6.5 billion euros), and the World Bank will give $1.3 billion (1 billion euros) to keep Hungary's economy from collapsing under the weight of the global financial crisis.
The news drove the benchmark BUX stock index to close up by a massive 14 percent and pushed the Hungarian currency the forint higher against the euro and dollar.
The unexpectedly large size of the loan analysts had been expecting up to $12.5 billion in aid was needed to calm markets' fears about Hungary's ability to meet debt payments, IMF officials said.
Analysts said Hungary's loan had been made so big because officials did not want to take any chances while world markets remain shaky.
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``This clearly illustrates that the financial crisis is significantly greater in Central and Eastern Europe than most market participants have been willing to accept until now,'' Danske Bank analyst Lars Christensen wrote in a research note. He added that the EU's involvement in the rescue plan was a sign it is ``afraid that if Hungary were allowed to implode, then the crisis could rapidly spread'' to other countries in the region.
National Bank of Hungary President Andras Simor said the aim of the standby loans was to ``strengthen the trust in Hungary of the international money and capital markets and provide assistance for the financing of Hungary's current account.''
Simor noted the funds made available to Hungary more than doubled the country's foreign currency reserves of some 17 billion euros ($21.29 billion), were nearly twice as large as all forint-denominated bonds held by foreigners and were five times larger than Hungary's debts maturing in 2009.
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Simor said Hungary would get access to the IMF money until March 2010 at an annual interest rate of 5 to 6 percent plus an annual standby fee of one-quarter percent. Officials from the Hungarian government, the IMF and the EU all said they expected Hungary would not need to draw the full amount available, as liquidity on international markets is expected to improve along with investors' confidence in Hungary's creditworthiness.
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Growing indebtedness, a large budget deficit and slowing growth have plagued Hungary in the past years, and its currency and stock market were among the worst affected by the global turmoil. Prime Minister Ferenc Gyurcsany Tuesday said Hungary should prepare for the economy to shrink by as much as 1 percent of GDP in 2009, compared to earlier expectations of growth of around 3 percent next year. He also cut the 2009 budget deficit to 2.6 percent of gross domestic product.
IMF Managing Director Dominique Strauss-Kahn praised Hungary's response to the crisis, saying the budget cuts and other measures would bolster the Hungarian economy and boost investor confidence, echoing similar words from the European Commission, the EU's executive body.
After years of bad policies, Hungary has ``taken the appropriate steps to address the crisis,'' Gulde said.
The EU and the IMF are expected to give final approval for the loans next week.
Over the past few weeks, Hungary's currency _ the forint _ has plunged against the euro and the U.S. dollar while the Budapest Stock Exchange's benchmark BUX reached its lowest point in four years.
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Volatile exchange rates are a particular problem for Hungarians because many people and businesses have housing loans and other debt in foreign currencies, mostly in Swiss francs and euros, which carry lower interest rates than loans in forints. The tumbling value of the forint means regular debt payments have now become far more expensive for many people.
On Wednesday, the forint continued to strengthen, a trend which began Monday after the initial details of the IMF-led rescue plan emerged.
In afternoon trading, the euro stood at 256 forints, down from 262 forints late Tuesday, while the dollar was down to 200 forints from 210 in the previous session.
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Last week the euro reached a peak near 286 forints while in July it was worth just 226 forints. The benchmark BUX index of the Budapest Stock Exchange closed 14 percent higher on Wednesday, with trading in some stocks temporarily suspended because of the large gains.
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