March 23 (Bloomberg) -- Hungary’s ruling Socialists began hunting for a new premier to tackle the economic and financial crisis after Ferenc Gyurcsany said he will quit with the nation mired in its worst recession in at least 16 years.

His successor, who will need opposition support, would be elected on April 14 by parliament, Gyurcsany, who heads a minority administration, said yesterday. Talks with rival parties are underway. The new Cabinet will have a year to repair Hungary’s finances before the next scheduled elections.

“The new premier will face an unfathomably huge challenge,” said Zoltan Lakner, a political analyst at Budapest-based Vision Consulting. “The person, probably an economist, needs to have crisis management experience and possibly a fully fledged crisis management plan.”

Hungary became the first European Union country to secure an International Monetary Fund-led bailout when it lined up 20 billion euros ($27.2 billion) last year to avert a default. The economy will contract 3.5 percent this year, the central bank says. The forint fell to a record 317.22 per euro on March 6 and is the worst-performing emerging-market currency this year.

Gyurcsany told his party’s congress on March 21 that he is willing to resign to allow the formation of a “new government with the leadership of a new prime minister.” He didn’t name a preferred successor.

Premier Candidates

Gordon Bajnai, the 41-year old economy minister, is a possible candidate, according to internet news portal Index. Bajnai, who isn’t a member of the Socialist Party, broke ranks with the government last week to say the nation risked a currency crisis this year if it didn’t pass deeper spending and tax cuts than planned.

Central bank Governor Andras Simor and a predecessor in that post, Gyorgy Suranyi, who heads the local unit of Intesa Sanpaolo SpA, Italy’s biggest bank by market value, may also be considered, Index said. Other candidates may include two finance ministers in a previous Socialist government: Laszlo Bekesi, who left the party in 1998, and Lajos Bokros, who managed spending cuts a decade ago, Index said.

Bokros, 54, supported by the opposition Hungarian Democratic Forum party and recently rejected by the Socialists, is the only one to have openly said he wants Gyurcsany’s job.

Gyurcsany’s successor is “unlikely to be a party politician,” Peter Kiss, minister in charge of the Prime Minister’s Office and another possibility named in the media, told MTI news agency yesterday. Analyst Lakner said no opposition party is likely to back a Socialist for premier.

‘Wider Support’

The new administration needs “wider political support” to cut spending further as the deeper-than-expected recession reduces revenue, Gyurcsany said yesterday. The government wants to keep the budget deficit below 3 percent of gross domestic product this year to meet pledges to the IMF and protect funding from the European Union.

Even as he presided over a reduction of the budget deficit from 9.2 percent of GDP in 2006 to about 3.3 percent last year, Gyurcsany was criticized in February by some opposition parties and the central bank for his proposed 900 billion forint ($4.1 billion) tax reshuffle to boost growth. Critics said more spending cuts were needed to stabilize the economy in the short run and boost growth in the long run.

“The government no longer had any room to maneuver,” Gyorgy Barcza, chief economist at KBC NV’s Hungarian unit, said yesterday. “Without new measures, the budget deficit would be more than the target.”

Sinking Popularity

The Socialist Party is less than half as popular as its biggest rival. Backing for the government started slipping when it introduced austerity measures to close a budget gap in 2006. The resulting economic decline was worsened by the global crisis, forcing the country to seek international aid.

The party had 23 percent support last month, the lowest in 10 years, compared with 62 percent for the largest opposition party, Fidesz, pollster Median said on its Web site on March 18. Gyurcsany’s popularity fell to 18 percent, making him the most unpopular premier since communism. The poll of 1,200 people has a margin of error of 2 to 6 percentage points.

Gyurcsany said his party plans to nominate a new prime minister at a special congress on April 5 and submit a constructive no-confidence motion in parliament the next day, along with a nomination for the successor. If a majority in parliament supports the motion on April 14, the nominee will automatically become premier.

Rate Outlook

The three weeks of political uncertainty could pressure the forint and may prompt the central bank to raise the benchmark interest rate at its meeting today, Barcza said.

That “may protect the forint in the short run as well,” Barcza said.

The bank is expected to keep the benchmark at 9.5 percent for a second month as concern about the weakening forint outweighs the outlook for inflation and growth, according to 20 of 21 economists in a Bloomberg survey. The survey was conducted before Gyurcsany said he would resign.

The forint plunged to a record against the euro this month after European Union leaders rejected Gyurcsany’s call for a rescue package for eastern Europe as investors flee riskier markets during global financial crisis, which is shaking the region’s economies.

The 47-year-old Hungarian premier, who has been prime minister since 2004, is not the first political victim of the widening recession in Europe’s emerging markets.

Latvia’s government resigned last month as the economic contraction sparked rioting and the Lithuanian administration that presided over the Baltic nation’s economic decline was turned out in elections in the autumn.

To contact the reporter on this story: Zoltan Simon in Budapest at zsimon@bloomberg.net.

Last Updated: March 22, 2009 19:00 EDT