Hungary asks for IMF and EU assistance

11/22/2011 20:46

BBC:  Hungary has asked the International Monetary Fund (IMF) and the European Union (EU) for financial assistance.

As the eurozone debt crisis has unfolded, official figures showed that the Hungarian government's total debt had risen to 82% of its output, as its currency, the forint, has weakened.

Hungary has said it wants "a new type of co-operation" with the IMF.

The IMF team in Budapest will now return to Washington to discuss the request.

The IMF confirmed that it and the European Commission had received a request for assistance.

"The authorities... indicated that they plan to treat as precautionary any IMF and EC support that could be made available," the IMF added.

Last week, Hungary's economy ministry said in a statement: "The government has started talks with the IMF and the EU about a new agreement that, instead of austerity measures, will aid Hungary's economic growth."

The forint fell to a record low against the euro last week and government bond yields have soared.

Most mortgages in Hungary are denominated in a foreign currency, in particular the Swiss franc.

The weakness of the forint - combined with the strength of the safe haven franc - has made these mortgages painfully expensive for Hungarians top repay.

Two ratings agencies have warned that Hungary could lose its investment-grade credit rating due to its weak growth outlook and unpredictable policy track.

Hungary is one notch above so-called "junk" status, meaning its cost of borrowing could soar without help.

The nation received an IMF-led bailout in 2008, but Prime Minister Viktor Orban ended the 2008 IMF deal, which had been agreed under the previous government, last year.

Since then, he has put in place a series of unconventional measures, including big taxes on banks and an effective nationalisation of pension funds.

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