| | Edition 02/2009
Hungary on the brink
As from 2008, Hungary belonged to the states being severly affected by the financial crisis. The country was prevented from a massive forint crisis and consequently a state bankruptcy only by intervention of the International Monetary Fund (IMF), the European Union and the World Bank.
The Gyurcsány government as well as the Bajnai government inaugurated only a few weeks ago bounded themselves to take a harsh course of financial reorganisation. However, this will be another burden for the economy. The first tranche of the loan granted to Hungary by IMF (4.6 billion EUR) was transferred to Budapest in November. Subsequently to the monitoring reports of IMF, the rest will follow in several tranches within a period of 17 months.
This liquidity shot became necessary when the stock of short-term bank liabilities massively increased. An EU aid package of 6.5 billion EUR was added to the IMF loan framework of 12.3 billion EUR. The World Bank promised help too. Altogether, 20 billion EUR were made available for Hungary. In addition, the European Central Bank (ECB) granted a liquidity support of 5 billion EUR to the currency guardians. Altogether, no other country has received so much financial support in the current crisis.
Many Hungarians are suffering from the financial crisis.
Forint under pressure
Apart from rapid budget reorganisation and inflation deceleration, sustaining the few, non-foreign banks in Hungary was made a condition for the loan by IMF. It was in the seventies when IMF last acted as a stand-in for a member of the European Union of today, then still the European Communities (EC). At that time, it was the new EC member Great Britain. Even after having being granted support, Hungary probably will suffer from a striking decrease of capital inflow in the banking industry due to an increased risk awareness. Foreign investors will rather avoid the country and reduce positions. Thus, the forint will remain under pressure. It is possible that interest rates will be reduced in spring. However, the issue bank has to be aware of not even more jeopardising the forint by doing so.
Due to the bad situation of world economy, GKI Wirtschaftsforschung AG in December predicted a GDP decrease of 2.5 percent and an investment reduction of 3 percent for 2009. At the beginning of May, the GDP forecast was corrected to a minus of 3 percent. According to the Kopint-Tárki research institute, the GSP will decrease less significantly. In regard to the investments, Kopint-Tárki expects a minus of about 2 percent.
Following the calculations of the Hungarian Chambre of Commerce (MKIK) dating from January, a decrease of 1.2 percent has to be expected in 2009. Within the range of international players, the European Bank for Reconstruction and Development (EBRD) expects a GDP decrease of about 2 percent in 2009, whereas the former ERBD forecasts were more optimistic.
Impact on exports
The functioning of Hungarian economic organs has already been affected by the continuous weakening of the forint. Due to the generally decreasing demand on export markets, experts do not see a chance for a significant increase in exports of goods even with a weak forint. On the contrary, the high import ratio for products to be processed in Hungary may cause a serious increase in price in the production. Besides, Hungary generally lacks of appropriate replacements for the semi-conductor products made use of in the production. Thus, a forint being weak in the long run is a huge burden.
The government and a couple of research institutes assume that the recession is going to continue only until the second half of the year or until the end of the year at the latest. However, financial analysts guess growth will start again only in the second half of 2010. First of all, this has to do with the unfavourable economic setting and the extraordinarily conservative interest rate policy of ECB.
András Radetzky
fehérvárrádió, Budapest
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