Hungary must choose between backtracking on economic policy as part of an International Monetary Fund loan with “strict oversight” or defaulting on its debt, former premier Gordon Bajnai said.
“The choice for the government is simple: an IMF standby loan with strict conditions or sovereign default, with its tragic short- and long-term consequences,” Bajnai said in an article posted on the website of the Haza es Haladas think tank.
Prime Minister Viktor Orban yesterday abandoned previous objections to an IMF bailout, indicating his government was open to “any kind” of credit line to prop up financing. The European Union and the IMF last month suspended aid talks after Orban pressed ahead with legislation that the central bank said violates its independence.
Orban’s policies, including the nationalization of private pension funds and the levying of extraordinary industry taxes, led to a loss of investor confidence, hurt growth and pushed the country’s sovereign-credit grade to junk at Fitch Ratings, Moody’s Investors Service, and Standard and Poor’s.
The acceptance of a standby IMF loan may restore economic-policy credibility in the medium-term, Bajnai said. For Orban, it would also mean a “political turnaround,” which makes reaching such an agreement “doubtful,” Bajnai said.
“For a politician backed into a corner and guarding his power, the tragedy of default” is only one side of the equation, Bajnai said. “The other is the U-turn from the direction followed thus far, the loss of political credibility, the admission of failure, which in the end” may lead to his “personal responsibility and downfall.”
Bajnai led a technocratic government for a year in 2009 and 2010, with the support of the former ruling Socialist party.