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The Hungarian forint
The Hungarian currency has been weakeningImage: picture-alliance / ZB

'Precautionary loan'

November 21, 2011

In a dramatic policy U-turn, Hungarian Prime Minister Viktor Orban has asked the European Union and the International Monetary Fund for "possible" financial assistance in the face of economic woes.


Hungary has asked the European Union and the International Monetary Fund for financial aid, days after the Hungarian government made a policy U-turn, saying it may seek a "precautionary" loan.

"The IMF has received a request from the Hungarian authorities for possible financial assistance," IMF managing director Christine Lagarde said in a statement on Monday.

The European Commission said their request would be studied "in close consultation with EU member states and with the IMF."

The Hungarian economy has been hit hard by the eurozone debt crisis. The forint currency recently hit record lows, sparking fears that Hungarian debt could be downgraded to junk status, making it harder to sell government bonds.

Recent official figures showed Hungary's total debt rose to 82 percent of gross domestic product by September, up from 75 percent at the end of June.

Investors also appear to be wary of the economic policies being pursued by Prime Minister Viktor Orban's center-right government.

Viktor Orban
For Prime Minister Orban, the move is a policy reversalImage: AP

Orban's promises of new jobs and lower taxes have come to nothing for the average Hungarian. The premier was forced to raise taxes and cut spending in an attempt to reduce a chronic budget deficit. He has effectively nationalized 11 billion euros ($15 billion) in assets held by private pension funds.

Analysts predict Hungary will have the lowest growth in 2012 among the 10 countries that joined the European Union in 2004.

Unpopular prime minister

Hungarians have reacted to what effectively amounts to a policy U-turn for the prime minster with dismay.

The economy still bears the scars of a recession in 2009, which pushed unemployment into double figures after the government was forced to implement harsh austerity measures in return for a 20-billion-euro bailout from the EU and the IMF.

On Thursday, the government made the shock announcement that it was planning to reengage with the IMF, after 18 months of pursuing what was dubbed "economic self-rule." Public backing for Orban and his Fidesz party has waned since the glory days of spring 2010, when the party swept to power, and this latest announcement hasn't helped matters.

Opposition parties quickly jumped the Fidesz policy reversal. The Socialists called on Orban and his economy minister, Gyorgy Matolcsy, to resign.

Gabor Vona, chairman of the far-right Jobbik party, said that by "begging its way back" to the IMF, the government had failed.

Author: Joanna Impey (AFP, dpa, Reuters)
Editor: Martin Kuebler

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