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Hungary economic policy “normalizing”, IMF deal still possible, says City

There are “signs of normalization” in the Hungarian government's economic policies, London-based emerging markets analysts said on Thursday.

In its quarterly World Financial Markets report, JP Morgan said that “following pressure from the EU”, Fidesz backed down from plans to increase the 2011 fiscal deficit target and announced that it was committed to cutting the budget deficit to below 3.0% of GDP. “Our base case remains that the government will resume negotiations with the IMF after the October municipal elections and that a new loan agreement will eventually be signed”.

“This is not because Hungary has an immediate need for official funds, but because a new program would lend much-needed credibility to the government's economic policies”, JP Morgan said.

In a separate research note released Thursday in London, Morgan Stanley reiterated its long-held view that the new IMF facility, the Precautionary Credit Line (PCL) “could be easily tapped by Hungary ... if need be”.

PCL is a facility designed for countries with sound policies which may however fall short of the Flexible Credit Line's high qualification requirements.

Morgan Stanley said, however, that according to its debt sustainability simulations, only the continuation of tight fiscal policy will guarantee that Hungary's debt/GDP ratio stabilizes or drops from current levels over the next years. (MTI-Econews)