Hungarian markets drop as talks fail
By Krisztina Than |
July 20, 2010, Tuesday
|
Print Edition
Print Edition
HUNGARY'S markets sold off yesterday after talks with lenders fell through at the weekend, rattling investor confidence in the government's policies and raising concerns over the country's debt vulnerability.
Hungary's government had insisted on a new financial sector tax this year and rebuffed lenders' calls for further austerity measures, the economy minister said yesterday.
The forint plunged over 2.5 percent versus the euro and bond yields surged 20-30 basis points as the collapse of the talks - intended to review the IMF/EU financing deal Hungary struck in 2008 - dealt the second major blow to investor confidence since the new center-right government took power in May. In June, officials alarmed markets by comparing Hungary's problems with those of Greece.
The International Monetary Fund and European Union have said the government needs to take tougher measures to rein in the deficit.
Analysts said market weakness could spill over to other central European markets, and the sell-off would likely to push the Hungarian government to reach agreement with its lenders soon.
"Arguably continued adherence to the current IMF program had anchored both markets and Hungary's (credit) ratings: The fact that Hungary is now going off-piste suggests both may be under threat," said Timothy Ash at Royal Bank of Scotland.
Hungary, which runs central Europe's highest public debt at about 80 percent of gross domestic product, won't be able to use remaining funds in its 2008 loan until it reaches a deal with the IMF and EU.
Hungary's government had insisted on a new financial sector tax this year and rebuffed lenders' calls for further austerity measures, the economy minister said yesterday.
The forint plunged over 2.5 percent versus the euro and bond yields surged 20-30 basis points as the collapse of the talks - intended to review the IMF/EU financing deal Hungary struck in 2008 - dealt the second major blow to investor confidence since the new center-right government took power in May. In June, officials alarmed markets by comparing Hungary's problems with those of Greece.
The International Monetary Fund and European Union have said the government needs to take tougher measures to rein in the deficit.
Analysts said market weakness could spill over to other central European markets, and the sell-off would likely to push the Hungarian government to reach agreement with its lenders soon.
"Arguably continued adherence to the current IMF program had anchored both markets and Hungary's (credit) ratings: The fact that Hungary is now going off-piste suggests both may be under threat," said Timothy Ash at Royal Bank of Scotland.
Hungary, which runs central Europe's highest public debt at about 80 percent of gross domestic product, won't be able to use remaining funds in its 2008 loan until it reaches a deal with the IMF and EU.
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