Hungary’s government regrets S&P downgrade

History

Hungary’s government reacted angrily to the late-Wednesday downgrade by Standard & Poor’s of its rating on Hungary to "BB plus" from "BBB minus". City analysts expect "negative but not huge repercussions".

S&P said its one-notch downgrade to the highest rating in speculative territory from the lowest investment grade reflects that growth prospects are hampered by the weakening predictability and credibility of the EU Union member-country’s policies.

"Hungary is only the suffering subject of this (crisis), indirectly due to the euro-zone

crisis and financial attacks against the EU," the Hungarian national economy ministry said in a statement.

The ministry said "it’s easy to see" that the S&P move is "not based on the evaluation of the Hungarian economy and financial system but a pressure by those market participants who are interested in the strengthening of the dollar zone and weakening the euro zone." The factors S&P cited as negatives, such as the crisis taxes and external indebtedness, aren’t any news in Hungary, the ministry added.

The ministry reiterated its key positives, stressing that the 2011 budget will be in surplus and that the 2012 budget will see the deficit below 3% of GDP. It also noted the government was quick to realize that growth in Hungary will be slower than what was originally expected and cut its forecast to a growth of 0.5% from 1.5% for next year. Public debt will also continue to decline over the years to come, the ministry said, and again pledged full commitment to a prudent economic policy and boosting economic growth.

Hungary’s government does not agree with S&P’s move to downgrade the country’s rating to "junk" as it does not take into account efforts to stabilize finances, Economy Ministry Secretary of State Gyula Pleschinger told Reuters.

"We don’t agree with either the timing or the content of the move. We are puzzled," Mr Pleschinger said, adding that the agency had earlier signalled it would wait until the outcome of the IMF-EU talks.

Mr Pleschhinger said the downgrade was "not a Hungary-specific move, S&P is downgrading European countries in a series."

After S&P’s move Hungarian eurobonds might be dropped from investment grade debt indexes which should cause some selling, Barclays Capital said. Funds following BarCap US IG Credit index handle roundabout USD 2.5 trillion and given Hungary’s 0.2% weight in the index that would entail the sale of "a few billion dollars" of papers, Barclays Capital added.

Barclays Capital expects that the downgrade could push Hungary towards a "more constructive" dialogue with the IMF and the EU, MTI’s London correspondent writes.

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