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Economic fundamentals don't justify downgrade, PM and economists say

Leading Hungarian economists agreed that Hungary's fundamentals did not justify a downgrade by Moody's at a meeting on Friday with Prime Minister Viktor Orban and Minister of National Ecomomy Gyorgy Matolcsy.

Talking to journalists after the meeting, Mr Matolcsy mentioned among fundamentals the budget deficit, the state of the current account and the new trends in employment when he talked to journalists after the meeting.

"This is something else. Some economists said the move (the downgrade) is an element of a speculative attack, others were not sure, but all agreed that the fundamentals have not justified Moody's decision,", the minister said, emphasising that "it should not be like this", because "in terms of financial stability Hungary belonged to the best countries of the EU, and this perception is shared by the European Commission, the IMF delegation and the National Bank of Hungary".

Early Friday Moody's lowered Hungary's debt rating from investment grade to speculative. Moody's cited high debt levels, weak growth prospects and uncertainty about the country's ability to meet fiscal goals as justification for the one-notch move. It kept a negative outlook on the rating, and late Friday also took rating actions on seven Hungarian commercial banks.

An expected slowdown of Germany's GDP growth next year makes unrealistic a 1.5pc growth in Hungary in 2012, and growth of 0.5 to 1.0pc is rather to be expected, Mr Matolcsy said.

Presently the government wants to outline a new economic growth plan, to acquire a financial safety net and to cooperate with the Hungarian Banking Association, the minister said.

Close cooperation with the IMF and the EU is needed in order to get the financial safety net, Mr Matolcsy added. 

"Of course we would like the most flexible version of the Flexible Credit Line, but apparently that is not something we can aim for," Mr Matolcsy said. "We will choose whichever is more flexible from a Precautionary Credit Line or a Precautionary Standby Agreement. We will negotiate."

"We do not want a credit line to draw on, but a safety net which we could present to the financial markets", the minister said, adding that Hungary wants to cover its financial needs from the markets now as well as in the coming years.

Prime Minister Viktor Orban's talks with Peter Akos Bod, Laszlo Csaba, Zsigmond Jarai, Istvan Hamecz, Gyorgy Barcza, Karoly Szasz, Istvan Torocskei, Lorinc Soos, Henrik Auth, Gyorgy Szapary and Mihaly Arnold in parliament on Friday was part of a series of scheduled consultations with the country's top economists. The prime minister last met with the economists in September.

Apart from Mr Matolcsy, state secretary of the Prime Minister's Office Mihaly Varga and Prime Minister's spokesman Peter Szijjarto also participated at the meeting.

In a separate development, Mr Matolcsy proposed to parliament on Friday to freeze HUF 12.7bn from the constitutional and media-communications reserves of this year's budget in order to achieve this year's budget targets. This follows another HUF 40bn freeze which was made earlier this year.