Hungary’s government braced for a possible recession in 2009 and Poland’s approved a timetable to adopt the euro on Tuesday as ex-communist Europe struggled to contain the spread of the financial crisis.
Lawmakers in Kiev ignored a call from the IMF to quickly pass legislation to underpin a $16.5 billion rescue package, but other governments across the region scrambled to rework budgets and take other steps to ward off economic collapse. The Fund also said it was not in talks with Romania - whose state debt ratings agency Standard & Poor’s cut to “junk” status on Monday - but said its external environment, or its ability to borrow cash to fuel the economy, was “very difficult.”
The financial crisis has come as a shock to most countries in Central and Eastern Europe, a region of states ranging from those still struggling with fundamental economic problems to those fully integrated in the European Union and euro zone. Once seen by economists as insulated due to its low exposure to toxic debt, the region shuddered this month as foreign investors dumped assets and fled to developed markets in a selloff that has hammered currency, debt and stock markets. Hungary, which like Ukraine and Iceland has turned to the IMF, said it would alter an original 2009 budget forecast of 1.2% growth to allow for possible recession - the first of the bigger, export-led economies in central Europe to do so.
“We should prepare for Europe and the world to struggle with recession and we should plan for Hungary’s economy not to grow but contract by up to 1%,” Prime Minister Ferenc Gyurcsány told a meeting with parliamentary parties. The EU also is also preparing an aid plan for Hungary but strings would be attached. EU member states have already agreed in principle, an EU Commission spokeswoman said, giving no details. EU law permits members still outside the euro zone to get medium-term loans worth up to €12 billion ($15 billion).
Hungary’s appeal to the IMF, a first for an EU member, followed a 3 percentage point interest rate hike last week to halt a 14% slide on the forint this month. The forint has risen more than 3% since then, mainly on news of the impending IMF deal, which analysts say could include a standby loan of up to $12.5 billion. (Reuters)