Hungary Municipal Debt Haircut Would Be Default, Orban Tells MTI

Hungary, which plans to take over most of the debt accumulated by local governments, would be considered to be in default if the state decided against paying back the loans in full, Premier Viktor Orban said, MTI reported.

It’s “premature” to talk about Hungary’s strategy to dealing with municipal debt since the government has yet to assume the loans, Orban said in an interview, according to the state news service.

“The speculation that if the government doesn’t pay back the debt or part of it would be a default is” as simple as “two times two” equals four, Orban said, according to MTI. “In the modern financial world everybody knows that if the debtor doesn’t pay it’s considered a default.”

Hungary is seeking a haircut of between 20 percent and 25 percent on all municipal debt the state is assuming, Magyar Nemzet reported today, citing unidentified government and ruling party sources. Hungary’s central government will take over 612 billion forint ($2.7 billion) of 983 billion forint in local council debt to avert a breakdown in their operations, Orban said on Oct. 27.

To contact the editor responsible for this story: Zoltan Simon at zsimon@bloomberg.net

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