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  1. #1
    Senior Member AirborneSapper7's Avatar
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    May 2007
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    Hungarian Currency Collapses

    Days of new flats, cars and generous state benefits over as currency collapses

    * Kate Connolly in Budapest
    * The Guardian,
    * Wednesday October 29 2008

    Jozsef Szepesi thought he was on to a winner when a few months ago his mortgage broker suggested a way of bypassing Hungary's high interest rates by taking out his 10m forint loan for the family home in Swiss francs. It seemed like a fine idea when the forint was strong - buoyed by the prospects that Hungary was soon to join the euro.

    But over the past few weeks he has watched with alarm as the forint has plummeted in value. Now one Swiss franc buys 188 forints, compared with 150 when he took out the loan, and his mortgage payments have soared.

    "They've risen from 60,000 to 85,000 (£260)," says Szepesi, an office clerk from Budapest whose monthly take-home pay is 175,000 forints. He also took out a five-year loan in Swiss francs for a car, repayments for which have risen 25% to £153 a month. "We can cut back to some extent, but we know this is only the beginning and the hardest time is probably yet to come," he said.

    But Szepesi is by no means alone. Hard currency loans account for about 90% of mortgages taken out by Hungarian households since 2006, in response to years of high government borrowing which has pushed up interest rates and made low-interest foreign currency loans look ever more tempting.

    Even worse hit than Szepesi are those Hungarians who took out mortgages in Japanese yen and who have seen a 40% surge in their debt in just three months as the yen's value has soared to a 13-year high. Ordinary people with loans pegged to foreign currencies now face the prospect either of much higher payments if the forint continues to fall, or the chance to convert their foreign loans into local ones but to then pay horrendously high (11.5%) Hungarian interest rates.

    The effect of a weak forint coupled with high interest payments and the reliance on foreign capital has sent Hungary's economy into freefall. Foreign banks and investors have been drawing capital in panic and experts have been warning of widespread bankruptcy - not just for ordinary citizens, but also possibly for the republic itself.

    The situation is a turnaround for a country used to pulling in investors, who once put more confidence in Hungary than in any other emerging market in the former communist east.

    This week the International Monetary Fund stepped in to stop any more investors from pulling their funds out of the country altogether. Hungary is now set to become the first EU state to receive an IMF lifebelt - of around €12.5bn.

    The bail-out announcement received a mixed response in Budapest yesterday. "We have a credit noose around our necks," declared the rightwing daily Magyar Hirlap, while another paper showed bundles of forint notes being sucked up by a cyclone.

    "This is going to be tough," said the tabloid Blikk, pointing out that a condition of the loan would be a 300bn forint cut in public spending, which will likely lead to high inflation and attacks on social benefits.

    Zoltan Pogatsa, a political economist at the Hungarian Academy of Sciences, said: "After years of communism there's no deep understanding of economics here. All they know is that after years of one-party rule they wanted flats, cars and electrical appliances and they needed the money to finance that. Turning to foreign currency wasn't a seriously stupid idea because everyone said how stable the forint was, that as long as it didn't lose value against the currency in which the loan was taken out it was OK."

    Emilia, a cleaner who has 16 separate jobs, said she was struggling to make ends meet. In a matter of weeks she and her carpenter husband, Csaba, 40, have seen repayments on their 7.8m forint mortgage, which they took out in Swiss francs, rise by 10% to 60,000 forints. They are still waiting to hear by how much the payments on the 2m forint, eight-year loan they took out on a Seat car are set to rise.

    "I have few regrets and I don't think we were badly advised - after all, who could have foreseen the current crisis? And anyway, the bad wind has come from America, not from Hungary," she said.

    Hungary's socialist prime minister, Ferenc Gyurcsany, cut public spending in response to warnings, but not by enough. And his own admission in a private meeting - a recording of which was leaked and sparked weeks of street violence - the government had "lied morning, evening and night" about the state of the economy to win the 2005 election, has irretrievably damaged any appetite for real reform during his remaining two years in office.

    A succession of governments is largely to blame for the current problems thanks to years of excessive public borrowing, which has preserved a generous social benefits system. That may be about to come to an end, particularly now that the IMF has a say in the way the budget is shaped. Rightwing politicians have been warning that it will be the controversial "13th month" state pension payment, made above and beyond the usual pension, which will be the first benefit to go. ... forint-imf
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  2. #2
    Senior Member AirborneSapper7's Avatar
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    Financial crisis: IMF agrees to $25.1bn rescue deal for Hung

    Financial crisis: IMF agrees to $25.1bn rescue deal for Hungary

    The International Monetary Fund, the European Union and World Bank have agreed to a $25.1 billion (£15.6bn) economic rescue package for Hungary to help it cope with the global financial crisis.

    Last Updated: 5:56AM GMT 29 Oct 2008

    The IMF said it had reached an agreement with Hungary for a $15.7 billion loan deal, while the European Union stood ready with an additional $8.1 billion in financing and the World Bank another $1.3 billion.

    The IMF's portion falls under a 17-month stand-by loan arrangement and could be approved by the IMF board in early November.

    "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," IMF Managing Director Dominique Strauss-Kahn said in a statement.

    "At the same time it is designed to restore investor confidence and alleviate the stress experienced in recent weeks in the Hungarian financial markets," he added.

    The agreed financing by the IMF is more than 10 times Hungary's IMF quota, way above the limit of three times the quota for countries in trouble. Each IMF member is assigned a quota based on its size in the world economy, which determines its financial commitment to the fund, its voting power, and has a bearing on how much it can borrow from the global lender.

    Strauss-Kahn said the core measures of the program should help improve Hungary's fiscal balance and strengthen its financial sector.

    "Specifically, the package includes measures to maintain adequate domestic and foreign currency liquidity, as well as strong levels of capital, for the banking system," he said.

    "Important measures in the fiscal area will reduce government- financing needs and ensure longer-term debt sustainability," Strauss-Kahn added.

    Hungary's financial markets firmed on Tuesday on hopes of the imminent financial help from the IMF, but its Prime Minister Ferenc Gyurcsany warned the Central European country is likely to slide into recession next year.

    The country has been battered by the financial crisis because its banking system is heavily exposed to foreign financing at a time when investors are pulling back from developing economies worldwide. ... al-crisis-
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