Nov. 7 (Bloomberg) -- The International Monetary Fund approved a $15.7 billion loan to Hungary to shore up an economy ravaged by the global financial crisis in exchange for the government's pledges to cut spending.

Available immediately will be $6.3 billion of the 17-month loan, the IMF said in a statement in Washington today, and the rest will be dispersed after quarterly reviews. The IMF funds bring to more than $25 billion the total amount of commitments Hungary has received in recent weeks, after getting $8.4 billion from the European Union and $1.3 billion from the World Bank.

The country's assets were battered as foreign-currency borrowing by local companies and consumers, along with slower growth, a wider budget deficit and higher government debt than elsewhere in eastern Europe, raised concern that the country may have difficulties in attracting capital.

``Hungary was hard hit by the global de-leveraging,'' the IMF said in the statement. The country was ``among the first emerging market countries to suffer from the fallout of the current global financial crisis'' because of its ``high'' levels of debt.

The weakening conditions in Hungary's main trading partners will ``leave less foreign capital available to return to Hungary quickly,'' the IMF said. The fund forecast the Hungarian economy will contract by 1 percent next year compared with growth of about 1.75 percent in 2008.

Growth isn't expected to reach Hungary's estimated potential of 3 percent until 2011, the IMF said.

Market Stress

The loan is designed to ``facilitate the rapid reduction of financial market stress in Hungary, while supporting the country's longer-run economic goals,'' the Washington-based lender said.

In return for the IMF support, the Hungarian government agreed to ``substantial fiscal adjustment to provide confidence that the government's financing need can be met.'' Such an effort would focus on cuts in government spending to ``reduce the country's large public sector.''

Hungary also needs to strengthen bank capital levels, the IMF said.

Anne-Marie Gulde, the IMF's mission chief for Hungary, said on a conference call that ``we are aware that the road ahead will be challenging.'' She said that since the loan had been announced there were ``encouraging signs that the exchange rate has been stabilizing.''

Emerging economies are turning to the IMF as investors, stung by losses in developed countries caused by the global financial crisis, sell riskier developing-market stocks, bonds and currencies. Ukraine and Iceland have received pledges of IMF financing, while Pakistan and Belarus have also asked for loans.

Western Europe is on the brink of a recession, exacerbating problems for neighboring emerging economies, which were scorched by investors dumping riskier assets in a flight to safety.

Earlier today, the IMF predicted growth in the 15-nation euro region will shrink 0.5 percent in 2009 and the U.S. economy will contract 0.7 percent.

To contact the reporter on this story: Zoltan Simon in Budapest at zsimon@bloomberg.net; Christopher Swann in Washington at Cswann1@bloomberg.net

Last Updated: November 6, 2008 18:15 EST