Hungary needs financial safety net for growth - Matolcsy

To achieve a growth turnaround, Hungary needs a financial safety net that protects it from the worsening crisis in the euro zone, but without increasing public debt, National Economy Minister Gyorgy Matolcsy said in an interview on public television late Sunday, explaining why a planned new type of cooperation with the International Monetary Fund (IMF) is necessary for the country.

The IMF is necessary because Hungary’s financial balance has been restored and a turning point has been reached, Mr Matolcsy said on m1’s programme Lenyeg. "The question is: are we capable of [economic] growth," he added.

Asked to explain the need for the IMF now when he said in parliament just a few days earlier that the IMF was "against every single measure" the government had taken to save people from the trap of banks, Mr Matolcsy said negotiating missions from both the European Commission and the IMF had acknowledged that Hungary had restored financial balance and that the fiscal deficit would fall under 3% of GDP in 2012.

"We have won a battle with devices that our partners otherwise criticised," he said, adding that nobody could question whether Hungary had a stable, balanced budget.

Hungary needs a financial safety net that serves as insurance against the deepening crisis in the euro zone, he said. If a country uses all of its resources for accelerated economic growth, to create jobs and to boost investments, it cannot get into financial trouble, including trouble resulting from the crisis in the euro zone, he added.

"We must secure a future growth," Mr Matolcsy said.

Hungary wants a financial safety net, an insurance policy, a credit line that does not increase state debt, as did the IMF-led standby arrangement the country signed in 2008, he said.

Hungary does not want a credit line it can call down, rather it wants a so-called precautionary agreement that it can use in the case of the greatest risk, if the crisis in the euro zone worsens further, Mr Matolcsy said.

Hungary’s partners have acknowledged that the country does not need to change its economic policy, he said. The IMF recognises the deficit will be under 3% of GDP, taking into account reserves, he added.

The government’s budget bill contains HUF 300bn of reserves, he noted.

Mr Matolcsy said the IMF sees the same risks as the government: that growth will be under the target.

He said Hungary’s government did not ask for a credit line after they came to power because that would have prevented them from taking all of the unconventional, brave measures carried out in the first 18 months of the term.

"We couldn’t have been the first ones in the European Union to introduce a bank levy, ... we couldn’t have levied crisis taxes, ... we couldn’t have transformed the private pension funds, which was a decisive, substantial element for achieving a financial balance," he said. If the government had stuck to orthodox measures, it would have had to take pensions away, overtax several hundred thousand small Hungarian businesses and totally tear apart the social system, he explained.

The minster said leaving behind orthodox measures resulted in achieving financial balance, bringing economic growth over the EU average, raising employment, pulling the unemployment rate under 10% and stopping the consumption freefall.

Asked how much achieving the financial balance had cost so far, he answered "more or less HUF 4,000bn could and can be used in this term to achieve financial balance for Hungary".

Responding to criticism by opposition MPs, Mr Matolcsy said the government was observing fairly and impartially how the IMF, the EU and strategic investors, including automotive industry companies, see Hungary. But they too see the government’s economic policy has restored the country’s financial balance which was earlier totally ruined.

"They don’t agree with the tools [of the government’s economic policy], and I wouldn’t agree with every tool we used if I were in their positions. But with these, Hungary’s economic policy ... won back the country’s financial independence," he said.

Asked whether he had any intention of resigning, Mr Matolcsy said, "By no means will I give up convincing MPs and the opposition parties that Hungary is following a successful financial economic policy."

Mr Matolcsy said the government had got a "nice big package" from the heads of the Hungarian Banking Association on the matter of borrowers with foreign currency-denominated loans on Friday afternoon. The package contained 6-8 proposed instruments on which the government will form its own opinion in the next two weeks, he added.

The EU, the IMF, the World Bank and the EBRD would welcome a joint solution that offers a feasible, clear, transparent "way out" of the forex crisis for banks, the governments, retail borrowers, businesses and local governments, Mr Matolcsy said.

"We have to solve this together, we have received such proposals," he added.