Hungary will escape forint and government crises - analysts


The fallout of a leaked speech by the Prime Minister, sprinkled with swear-words and an apparent admission that his previous government "lied around the clock" about the real state of Hungary's finances is likely to be insufficient to bring down the government or cause severe market setbacks, but can exacerbate short-term market pressures, London-based emerging markets analysts said on Monday. Dwyfor Evans, Vice President for emerging markets strategy at Bank of America in London told Econews the leaked comments "are not particularly what you expect the Prime Minister to come out with". However, "he basically admitted what most governments and most prime ministers actually do anyway", he said. Thus, "I don't really think the fallout will be particularly grave from a market perspective ... no long-lasting repercussions" are expected. "We knew for quite some time that government and finance ministry comments on the budget did not reflect reality ... one of the reasons why we have seen bouts of sell-offs in the Hungarian market (was) the fact the words of the Finance Ministry in particular could not really be trusted when it came to budget developments in Hungary". All these (Gyurcsány’s) comments have done is effectively give the market some reassurance that "it was correct in taking the view that it did take with respect to government policy over the last couple of years", Evans said. "I can't really see there being a longer-term impact either on the economy or the political situation", he added. Jeff Gable, emerging markets strategist at Barclays Capital in London told Econews that there is "a very difficult and very meaningful fight" in the Socialist party. The leak suggests that "there are powerful people within the party that would like to see the Prime Minister fail ... presumably this also means there are people against the austerity package".

The tax hikes have been passed and put through but there are a number of very difficult measures that still need to be taken, and "clearly there is significant resistance within the party to the Prime Minister himself and his policies", Gable said. Asked about the potential fallout on the forint market, he said that going into late Friday the forint was at the very strong end of the range that it has been trading in for some time, suggesting that "a lot of good news has been priced in". And, the notion of the market potentially starting to price in a partial or complete reversal of the fiscal measures "is probably quite far-fetched ... (as is) the notion that this (scandal) might be a precursor of something like an early election" he added.

In its daily emerging markets overview released in London, Dresdner Kleinwort said that while there may be only a small chance that the government can be brought down, "clearly large scale of losses at the local election would add to pressure and increase the risk that budget cuts will be watered down ... we expect the forint and local markets to come under pressure this week". In a separate emerging markets comment, Goldman Sachs said on Monday that it expects further protests, but the Prime Minister has already made clear that he is not planning to resign, and "we do not think he will be forced out". The junior coalition partner Free Democrats did not like the speech, but "we do not think they will leave the coalition over it either". (Mti-Eco)

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