Hungarians on Friday reacted with dismay to a policy U-turn that has set the country on course for another IMF program, with Prime Minister Viktor Orban the main target of their disenchantment.
The economy still carries the scars of a 2009 recession, which pushed unemployment into double digits after austerity measures in return for a 20 billion euro (US$27.5 billion) bailout from the IMF and the EU to save Hungary from collapse.
For Orban, who broke ties with the IMF last year to pursue an unorthodox policy mix dubbed a struggle for “economic self-rule,” a reluctant return to the IMF is the worst blow politically since his party swept elections in April last year.
Even before Thursday’s shock announcement to re-engage with the IMF, which turned a year and a half of government policy upside down in the blink of an eye, public backing for Orban’s center-right Fidesz was on a steady decline.
Government promises of stellar economic growth, new jobs and lower taxes have come to nothing for the average Hungarian as Orban was forced to raise taxes and cut spending to reduce the nation’s chronic budget deficit and state debt.
With all the hostility toward the IMF, it seemed unthinkable just 24 hours ago that Budapest would seek a new agreement.
Even the central bank and the IMF itself appeared caught off balance by the news, learning of the government’s plan from media reports.
Hungary obtaining an IMF safety net would reduce pressure on the country’s debt rating, Fitch Ratings said.
Hungary has a “long way” to go to reach an agreement, which would probably have “strict conditionality” that would reduce the government’s policy room, Fitch said in a statement from London yesterday.
Hungary wants “insurance” from the IMF without conditions, Orban said earlier yesterday.
The government reversed a policy of shunning IMF assistance after the forint fell to a record low against the euro and government bond yields soared. Standard & Poor’s on Nov. 11 warned that it might cut Hungary’s credit rating to junk this month. The same day, Fitch cut its outlook on Hungary’s rating to negative from stable.
“We believe a new IMF program could have several benefits, including the provision of fiscal and external financing, or the option of it,” Fitch said. “It could also boost market confidence and introduce more transparency and consistency to policymaking.”
The forint, the worst-performing currency in the world since June 30, gained 3 percent in the past two days, the most since May 2009 on a closing basis.
The Cabinet wants to boost investor confidence with a “new type” of cooperation that doesn’t entail a loan, Hungary’s economics ministry said on Friday.
Hungary wants to reach an agreement with the IMF and the EU by February, the ministry said yesterday in an e-mail.
The Washington-based lender hasn’t received a request to “initiate negotiations on a Fund-supported program,” it said in a statement on Friday.
The European Commission, the EU’s executive arm, is aware of Hungary’s intention to seek aid from the bloc even as it hasn’t received “any request yet,” commission economics spokesman Amadeu Altafaj told reporters in Brussels yesterday.
“Even if a deal were agreed, the potential for reform fatigue, a track record of unpredictable policymaking and a desire for asserting national independence could make it challenging to stick to an IMF program,” Fitch said.
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