Fitch says Hungary will need credit deal in first half, as IMF holds all the cards

Speaking to Bloomberg Television today, Rawkins said Hungary needs to secure a bailout from the International Monetary Fund (IMF) and the European Union in the first half of 2012 if it wants to restore market confidence.

“There is a recognition that they will have to make a deal with the IMF, because they have no choice really. The IMF holds all the cards, borrowing from the market is becoming too expensive," Rawkins said.

“Hungary’s problems are very country-specific; there are problems in the region, but a lot of Hungary’s problems are of its own making. And so it is undermining confidence, and it is very hard to restore that confidence."

Hungary is going to need an IMF/EU deal to do that, he added.

The IMF/EU negotiating missions preparing formal bailout talks left Budapest prematurely in December 2011 as Prime Minister Viktor Orbán refused to withdraw legislation that the institutions said may undermine the central bank’s (NBH) independence.

Hungary’s chief negotiator Tamás Fellegi started preparatory talks with IMF representatives in Washington yesterday and is scheduled to meet IMF Managing Director Christine Lagarde on 12 January, state newswire MTI reported.

In an interview with CNN over the weekend, Lagarde was asked whether in view of the recent indications that the cabinet might have shifted its position will the IMF be willing to compromise or the NBH independence is critical to a deal. To that she responded: "We’re not complacent, we don’t compromise, but equally we never leave the table."

On Monday, EU Economic and Monetary Affairs Commissioner Olli Rehn said securing the independence of Hungary's central bank remains one of the key issues for any help from the EU and the IMF.

Rehn’s spokesman, Amadeu Altafaj-Tardio, told a press conference today that the EU executive is close to concluding the analysis of the law.Asked whether a bailout is imminent, i.e. could it happen in the next few weeks, Rawkins replied: “Hungary isn’t going to fall over tomorrow, it has some cash in the bank, but it certainly needs to have a deal within the first half."

Last Friday, Fitch Ratings downgraded Hungary's Long-term foreign and local currency Issuer Default Ratings (IDR) by one notch to 'BB+' and 'BBB-', from 'BBB-' and 'BBB' respectively. The Outlook on the long-term IDRs is Negative.

Fitch was the only major agency still with Hungary at investment grade.

• Tags:
• imf,
• fitch,
• economy,
• lagarde,
• credit line