The IMF will make €4.9 billion of the loan available to Hungary immediately, while the remainder will be accessible in five installments subject to quarterly reviews.
The IMF loan, which is more than tens times Hungary's quota, is part of a €20 billion financial support package for Hungary that includes €6.5 billion from the European Union and €1.0 billion from the World Bank.
The IMF loan “will provide Hungary with the amount of reserves that is sufficient to meet its external obligations, even in extreme market circumstances,” the IMF said.
The IMF loan is designed to reduce financial market stress and create the conditions necessary for government reforms that ensure the state's debt-financing needs decline, and banking sector reforms that aim to maintain adequate liquidity and strong levels of capital in the banking system.
The IMF acknowledged Hungary's narrowing budget deficit resulting from a fiscal consolidation carried out over the past two years, but it said the program had been interrupted by the global financial crisis. Hungary was especially vulnerable to risk aversion as global liquidity dried up because of its high debt levels and big current account deficit, the IMF noted.
In October, several Hungarian bond auctions failed, the secondary government securities market came to a standstill, the stock market plunged and the forint weakened sharply.
“Reducing financial market stress will require both a high degree of policy discipline and large external financing,” IMF first deputy managing director John Lipsky said. The joint financial assistance provided by the IMF, the EU and the World Bank “sends a strong signal of the international community's confidence that, with the consistent implementation of the program, Hungary will weather the current difficulties.” (MTI – Econews)
