Hungary will pull through the global financial crisis as its fundamentals have improved over the past two years and relying on help from the European Central Bank will be a last resort, the central bank governor said.
“There is totally irrational behavior and malicious gossip on the market,” the Wall Street Journal’s online edition quoted National Bank of Hungary Governor András Simor as saying on Sunday. “That’s why when this wave of the crisis affected us, the first thing we did was to call the EU and IMF and we said we think we’re OK, we’re on a sustainable path, but markets are irrational, we need you to state your support,” Simor said.
Analysts have said that European Union member Hungary is one of the continent’s most vulnerable economies due to its high debt, heavy reliance on external financing and the popularity of foreign exchange loans among households. The European Central Bank along with the International Monetary Fund offered financial and technical support to Hungary over the past week but the country has said it would take the assistance as a last resort. “We don’t need the (ECB) money. It’s a lender-of-last-resort function. It doesn’t mean that we use the money. We would use it in a scenario where all hell breaks loose,” Simor said.
Despite the offers for help, Hungary’s forint and the country’s stock market fell sharply last week while the government bond market froze up. To combat the market turbulence and restart bond market, the government introduced measures to cut the budget deficit further while the central bank introduced several new financial facilities to pump liquidity into the market.
Simor added that there was no comparison between Iceland’s recent financial meltdown and Hungary’s current standing, except for the scaremongering done by some investors. “In today’s world you need a psychologist and not an economist to understand markets,” Simor said. “When these things are happening you have to take every possible precaution to protect yourself, it doesn’t matter whether it’s logical or not logical.” (Reuters)