IMF and EU say Hungary requested possible financial aid
Hungary officially requested precautionary financial help from the IMF and the European Union yesterday but it may have to agree to a standby loan under stricter conditions if pressure on its markets increase due to the eurozone crisis.
Both the IMF and the European Commission said they had received a request from Hungarian authorities for possible financial assistance, in line with an announcement by Hungary last Thursday. They said the Hungarian government was seeking precautionary help.
Hungary took investors by surprise last week when it said it planned to seek a new deal with the IMF, after a previous loan expired last year and the centre-right government sought to pursue its own unconventional policy ideas on spurring economic growth.
But the eurozone debt crisis and Hungary's weak economic outlook -- with the economy seen as barely avoiding recession in 2012 -- coupled with the threat of a downgrade to 'junk' debt status prompted the government to take a U-turn.
Hungary is financing itself from the markets but yields on its bonds have jumped above 8pc in recent weeks, leading to the debt agency cutting or scrapping some bill auctions. The government hopes a new deal with lenders could shore up market confidence.
Although the government stressed it did not want to draw on the new credit, analysts said its talks with lenders would be hard due to its unorthodox policies, and it may need to agree to a standby loan.
"The IMF has received a request from the Hungarian authorities for possible financial assistance. The authorities have sent a similar request to the European Commission and indicated that they plan to treat as precautionary any IMF and EC support that could be made available," Christine Lagarde, managing director of the IMF, said yesterday.
"In terms of the form of programme, Hungary's policy choices and approach to the EU/IMF over the past 18 months are likely to leave it with little option but a traditional standby arrangement," Unicredit analyst Gillian Edgeworth said.