The EU and the IMF suspended the consultations with Hungary
The International Monetary Fund and the European Union have suspended Saturday program evaluation assistance granted to Hungary in 2008 to enable it to overcome the financial crisis, noting that tough measures must be taken to reduce deficits.
The suspension means that consultations, as the assessment has been completed, Hungary can not access funds that have not yet been used for the loan of 25.1 billion euros earmarked by EU and the IMF.
The negotiations were supposed to be completed by early next week.
According to analysts, the forint, the national currency could fall sharply at the reopening of markets on Monday.The loan from the EU and the IMF now serves as a safety net for Hungary, which is financed on the markets since the end of last year.
"In an environment of increased scrutiny by the markets of government deficits and debt levels, the budget deficit targets previously announced – 3.8% of GDP in 2010 and less than 3.0% of GDP in 2011 – remains a appropriate basis for the necessary process of consolidation and debt sustainability (…) but additional measures will be taken to achieve these goals, "said the IMF.
The new center-right government, based on the April elections, said he wanted to extend the current agreement with the EU and the IMF until the end of 2010 and obtain a new agreement, as precaution, for 2011 and 2012.
The Minister of Economy, Gyorgy Matolcsy said clearly that the government wanted to resume negotiations with its international creditors.
"The government will obviously continue discussions with international organizations, including the EU and the IMF," he said in a statement taken Saturday by the news agency MTI.
'DIFFICULT DECISIONS'
Christoph Rosenberg, who led the IMF delegation to Hungary, said that the international organization requested more details on the budget next year."When we come next time, unless we were coming next week, the government has consistently advanced the budget 2011 and budget will be very important," he told Reuters.
He also said that the IMF had not discussed with the Hungarian authorities for a new funding agreement for 2011 and 2012.
In a separate statement, the EU has indicated that the conclusion of the evaluation had to be postponed and that further consultations would be held.
"Hungary has returned on a path of positive economic growth and record today one of the lowest gaps in the EU.I welcome the commitment of the authorities towards the 2010 target of reducing the deficit, "said Olli Rehn, European Commissioner for Economic and Monetary Affairs.
"However, the correction of the excessive deficit from next year will require difficult decisions, including spending," he added.
Hungary needs to maintain the safety net that provides the loan of the EU and the IMF to maintain the confidence of the markets from which it borrows.The country remains vulnerable to high public debt, which represents 80% of GDP, and its dependence on foreign financing.
"If we do not have the safety net international creditor, it will penalize us where we are most vulnerable," he responded Zsolt Kondradt, analyst at MKB Bank, adding that a decline in the forint is expected Monday.
The Hungarian currency was trading at 282 forints per euro Fridays.
Romania has already had to make tough decisions last month to ensure the disbursement of IMF aid and reassure the markets.