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IMF, EU in $25bln rescue package for Hungary
2008-10-29
WASHINGTON (AFP) - The International Monetary Fund, the European Union and World Bank have come to the rescue of Hungary, throwing the embattled country a 20-billion-euro (25-billion-dollar) lifeline as it fights the financial crisis. The IMF pledged a loan of 12.5 billion euros (16 billion dollars), the European Union offered 6.5 billion euros, while the World Bank added another billion euros, the IMF said in a statement issued late on Tuesday. "An IMF staff mission and the Hungary authorities have today reached agreement... on an economic program supported by a 12.5-billion-euro loan under a 17-month stand-by arrangement," IMF chief Dominique Strauss-Kahn said. "The EU stands ready to provide a loan of 6.5 billion euros and the World Bank has agreed to provide 1.0 billion euros." The IMF loan is subject to approval from the IMF executive board, which the Washington-based institution said could happen in early November. As the fallout from the financial crisis ripples around the world, a number of countries have found themselves needing assistance from the IMF, a lender of last resort to cash-strapped nations. Iceland and Ukraine have also agreed loans while Belarus and Pakistan have appealed for assistance. In Hungary, the values of the currency, the forint, as well as stocks and bonds have plunged. The country's vulnerability stems from a large current account and budget deficit, a partially overvalued currency, a low stock of foreign reserve and a high level of short-term foreign currency debt, analysts say. "The Hungarian authorities have developed a comprehensive policy package that will bolster the economy's near-term stability and improve its long-term growth potential," Stauss-Kahn added. "At the same time it is designed to restore investor confidence and alleviate the stress experienced in recent weeks in the Hungarian financial markets." In exchange for IMF money, countries are required to implement a series of economic reforms. Stauss-Kahn said Hungary had agreed to a program designed to "improve fiscal sustainability and strengthen the financial sector." Measures include commitments to maintain adequate domestic and foreign currency liquidity, as well as strong levels of capital for the banking system. The government has also agreed to "measures in the fiscal area (that) will reduce government-financing needs and ensure longer-term debt sustainability." The European Union confirmed on Wednesday that it was prepared to grant the 6.5-billion-euro loan to Hungary. In a joint communique released in Paris, the French presidency of the EU's Ecofin Council and the European Commission said the aid had been decided upon "in coordination with the IMF so as to strengthen the sustainability of Hungary's balance of payments." The statement said concrete details of the offer would be finalized shortly in consultation with the Hungarian authorities, adding: "We also back the IMF's request to the big financial institutions operating in Hungary to continue to give adequate financing to the economy."
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