Hungary Is `Perfect' for New Precautionary IMF Loan, Morgan Stanley Says

The International Monetary Fund’s precautionary credit line, a new type of loan facility offered to countries to help stave off crises, would be “perfect” for Hungary, whose bailout expires in October, Morgan Stanley said.

The precautionary credit line, aimed at nations with “moderate vulnerabilities,” was presented last week by the IMF to attract more countries to its contingency financing program. It requires semi-annual reviews by the Washington- based lender, instead of the quarterly reviews for Hungary’s current 20 billion-euro ($26 billion) IMF-led bailout, Morgan Stanley said.

Hungary, the first EU member to obtain a bailout in 2008, doesn’t need a new IMF loan because it can finance its budget deficit from the market, Economy Minister Gyorgy Matolcsy said on Sept. 3. Hungary wants to regain its “economic sovereignty” and doesn’t want to negotiate economic policy with the IMF, Prime Minister Viktor Orban said after the Fund failed to endorse the government’s budget plans in July.

“The PCL represents another line of defense which we think is ready to be used should Hungary request it,” Morgan Stanley said in a note today. “The IMF is clearly keen to step in and contain the situation as it did in 2008-09. We do not doubt that Prime Minister Orban’s rhetoric would turn much softer towards the IMF if the situation became really serious.”

The precautionary credit line targets countries that would not qualify for the existing flexible credit line. The loan would be made available based on the assessment of a country’s external position, the ability to finance itself from the market, fiscal discipline monetary policy and the health of the banking system, Morgan Stanley said.

“When one reads the conditions, the PCL would be perfect for Hungary, a country whose fundamentals are not strong enough to qualify for the flexible credit line but which also implemented impressive policies in recent years, achieving a much better fiscal position,” Morgan Stanley said.

• Tweet
• More
  • Business Exchange
  • Buzz up!
  • Digg
• Print
• Email