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IMF may allow Hungary to run up higher deficit: chief
The International Monetary Fund may allow Hungary to run up a higher public deficit than the one agreed under a massive bailout of the country last year, the IMF’s chief said Friday.
„We are discussing with the Hungarian government to redefine the programme and allow a bigger deficit,” Dominique Strauss-Kahn told a news conference.
„When the programme was set up, the world economy wasn’t as bad as today.”
As part of a 20-billion-euro (27 billion dollars) international bailout package last year, the IMF loaned Hungary 12.3 billion euros.
Among the conditions was a pledge by Budapest to keep its public deficit below 3.0 percent of total economic, a promise now proving difficult given the length and depth of the current downturn.
Earlier on Friday, data showed that the Hungarian economy shrank for the third quarter in a row in the first three months of this year, contracting by 2.3 percent.
Asked whether Hungary’s deficit ratio could rise to 3.9 percent this year instead of the 2.9 percent previously expected, Strauss-Kahn replied: „The figures are in the range you’ve quoted. We are discussing with the government and also with the EU, which is part of the financing. We are very close to a final agreement.”
Earlier, Hungarian Premier Gordon Bajnai said Budapest may ask the IMF to renew its loan after it expires next March, although the country’s funding is now secure.
„If market conditions remain extremely volatile and, or if, markets return to being more risk-averse, we’ll be looking at extending the programme with the IMF,” Bajnai told the foreign press in Budapest.
Hungary was the first European Union member to turn to the IMF for a bailout to avert financial meltdown last October.
The 20-billion-euro stand-by credit line provided by the IMF, the EU and the World Bank is due to expire in March 2010.
Bajnai was non-committal about the future.
„We have almost a year to go until next March and as things have started to go in the right direction, it is still too early to say” if Hungary will apply for a renewal of the contract, he said.
Bajnai said earlier that Hungary’s economy would shrink by at least six percent this year.
„This year’s recession figure is expected to start with a six,” he said, refusing to give an exact figure while talks with an IMF delegation, currently in Budapest to discuss government austerity plans, were ongoing.
Bajnai, who came to power in April after his predecessor failed to secure parliamentary approval of austerity measures in crisis-hit Hungary, has drawn up a crisis management programme based on a 6.0-percent contraction of GDP.
An independent, he expressed confidence Friday that the ruling Socialists would continue to support his belt-tightening measures despite a likely defeat in upcoming European parliamentary elections.
„I don’t expect any surprises … A significant majority will go to the current opposition … but this government will continue to serve its mandate,” he said.