25 November 2011

Bloomberg: Hungary cut to junk at Moody's after IMF plea

The government has scrapped two debt sales and reduced the size of another eight auctions in the last three months as the euro region’s debt crisis deepened. Prime Minister Viktor Orban’s Cabinet on November 17 asked for IMF “insurance” that doesn’t entail a loan and doesn’t impose conditions.

“The first driver of today’s downgrade is the uncertainty surrounding the Hungarian government’s ability to meet its targets on fiscal consolidation and public sector debt reduction”, Moody’s said. “Hungary’s recent requests for assistance from the IMF and the EU illustrate the funding challenges facing the country.” Orban’s steps included raising revenue by effectively nationalising $14 billion of assets held by private pension funds, levying extraordinary taxes on the banking, energy, retail and telecommunication industries, and forcing banks to swallow exchange rate losses on foreign currency mortgages. The steps were aimed partly at plugging budget holes resulting from a cut in personal income and corporate tax rates.

The Constitutional Court was stripped of its right to rule in most economic issues. An independent Fiscal Council was dismantled and a new one set up dominated by Orban’s allies. “We want insurance and we don’t want to tie our hands”, in reference to a 'new type' of IMF agreement Hungary is seeking, Orban said this week on MR1 radio. “No one can limit Hungary’s economic sovereignty, that’s the basic tenet of the government’s philosophy.”

The government is also carrying out spending cuts, including drug subsidies, and increasing taxes to meet budget goals. The Cabinet announced plans to cut outlays by as much as $4 billion a year by 2013. The government also plans to raise taxes next year, including the value added tax and excises.

Full article

© Bloomberg