Fitch Ratings agency piled further pressure on embattled Hungarian Prime Minister Viktor Orban on Friday as it joined Moody’s and Standard & Poor’s in downgrading the EU member’s debt to “junk” status.
However, Orban, against whom tens of thousands of people demonstrated on Monday, defiantly refused to alter new central bank legislation that is holding up agreement on help from the IMF and EU.
Fitch said the cut by one notch in its rating to “BB+” — with a negative outlook — was owing to “further deterioration in the country’s fiscal and external financing environment and growth outlook.”
It said this was “caused in part by further unorthodox economic policies which are undermining investor confidence and complicating the agreement of a new IMF/EU deal.”
However, key financial indicators, having taken a hammering this week, all recovered slightly, with traders saying Fitch’s move had been widely expected.
Hungarian government spokesman Andras Giro-Szasz said Budapest found the downgrade “surprising.”
“Over the last 24 hours, the government and even the prime minister have made several statements which made the government’s goals with the EU and the IMF talks clear,” he said.
Hungarian Foreign Minister Janos Martonyi told France’s Figaro newspaper, in an interview due to appear yesterday, that his country remained committed to talks with the EU and IMF.
“[These negotiations] will not fail. I am not saying we are ready for everything. What I am saying is that everything is negotiable,” he said.
Hungary’s currency, the forint, which on Thursday hit a new record low of 324 forint against the euro, on Friday recovered some ground before closing at 316.25 against the single currency.
The yield on Hungarian 10-year bonds stood at 9.98 percent, down from a high of 10.7 percent on Thursday, but at a level that still makes borrowing costs painfully and unsustainably high. The cost of insuring against the country defaulting on its debt also hit a new high on Thursday, but eased slightly on Friday.
Former Hungarian finance minister Peter Oszko, who served from 2009 to 2010, blamed the situation not on the global slowdown, but on the “destructive economic policy of the government.”
IMF and EU officials broke off preliminary talks last month about a possible credit line of between 15 billion and 20 billion euros (between US$20 billion and US$25 billion) owing to worries about reforms to the central bank.
In concerns echoed by the European Central Bank, the IMF and EU fear that the legislation, part of a barrage of reforms under a new constitution, will give Orban’s government undue influence in setting interest rates.