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Forint May Weaken as Malev Grounding Hits Budget, Equilor Says

Hungary’s forint and stocks may weaken as government obligations to compensate Budapest Airport for losses tied to the bankruptcy of state-owned airline Malev Zrt. threaten state finances, Equilor Befektetesi Zrt. said.

Malev, which has debts of 60 billion forint ($270 million), ceased flying today after the government withdrew financing. Its demise may force the state to pay about 1.5 billion euros ($2 billion) as a one-off obligation to the airport’s operators, according to paper published by the Development Ministry in December, which cited a privatization contract.

The state’s difficulties in paying the compensation “may result in short-term weakening in the forint,” adding to pressure as the country struggles to restart talks on a bailout from the European Union and International Monetary Fund, Akos Kuti, Budapest-based head of research at Equilor, wrote in an e-mail today, adding that shares may also take a hit.

The forint weakened as much as 0.3 percent before trading 0.3 percent stronger at 2:55 p.m. in Budapest after the U.S. jobless rate unexpectedly fell to the lowest in three years. It has strengthened 8.3 percent this year, the most among more than 20 emerging-market currencies tracked by Bloomberg. The benchmark BUX stock index retreated as much as 1.2 percent before rebounding 0.5 percent following the payroll data.

The payment of the compensation fee “would have critical consequences for Hungary’s budget targets” and would mean a “serious financing burden,” the ministry said in its paper on Malev in December.

“We think investors excluded such an amount from the equation,” Kuti said.

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