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Hungary Requests ‘Precautionary’ Financial Aid From IMF, EU

Hungary has requested possible “precautionary” financial assistance from the International Monetary Fund and the European Union to boost its ability to tap international markets.

The IMF and the European Commission have confirmed today that they received the request, the two institutions said in separate e-mailed statements. Hungary on Nov. 17 said it plans to start talks for a “new type” of cooperation after the forint fell to a record low against the euro.

Hungary, the first European Union country to receive an IMF-led emergency bailout in 2008, abandoned its policy of shunning IMF assistance. The forint fell and government bond yields soared after Standard & Poor’s on Nov. 12 warned it may cut the country’s credit rating to junk this month.

“Hungary’s economic policy is clearly successful as the government uses brave and unusual measures,” Economy Minister Gyorgy Matolcsy told lawmakers in Budapest. “There’s no reason to veer from this policy as it’s successful.” Hungary is seeking an IMF “insurance” that will boost the country’s ability to tap markets to finance its debt, he said.

Forint, Bonds

The forint, the worst-performing currency in the world since June 30, weakened 1.2 percent to 307.52 per euro at 1:40 p.m. in Budapest. The currency fell to a record low of 316.76 per euro on Nov. 14.

Hungarian bonds rallied on Nov. 17, reducing the yield on notes maturing in 2017 by 46 basis points, or 0.46 percentage point, to 8.24 percent after the ministry announced it was turning to the IMF. The yield, which reached a two-year high of 8.74 percent two days before the announcement, today rose 2 basis points to 8.308 percent.

An IMF team, in Hungary for a regular annual review, will cut short its visit and return to Washington to discuss the country’s request with the lender’s management, the statement said.

Hungary has its credit grade at the lowest investment rank at all three major rating companies. Cooperation with the IMF move may help the country avoid losing its investment-grade credit rating, central banker Ferenc Gerhardt told ATV channel yesterday.

Hungary is cutting spending and raising taxes to narrow the budget deficit to below an EU limit of 3 percent of gross domestic product next year. The government may have to reduce its growth forecast of 1.5 percent, on which the budget is based, Matolcsy told public television M1 yesterday.

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