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Hungary's ability to finance itself without IMF is a myth, says Nomura

Hungary won’t be able to access capital markets if it can’t reach agreement with the International Monetary Fund and the European Union on the terms of its bailout loan, Nomura International Plc said in a note, reported Bloomberg.

Hungary’s assumption it can finance itself without the IMF’s backing is “a myth” as risk aversion can rise anytime, said Peter Attard Montalto, a London-based emerging market economist, in an e-mailed note today.

The country’s debt management agency has missed its sales target at four bond auctions since June 3, when an official of the ruling Fidesz party said Hungary had a “slim chance to avoid a Greek situation.” The comments helped send the euro to a four-year low against the dollar on concern Europe’s debt crisis may be spreading.

“Hungary does need an extension,” of its IMF and EU borrowing facilities, “even if it keeps the money for a rainy day,” Montalto said. The view that “Hungary has access to market sources, does not need help from the IMF in 2011, and has a very comfortable rollover picture” is “a myth.”

Montalto suggests the comments “sound like Greece six months ago.”

The view that “everything will be fine after the local elections and Fidesz will do the hard work necessary to reach the deficit targets,” is also a “myth,” according to Nomura.

An agreement would require “a significant shift on the part of the government,” Nomura said. “Our understanding from the lender missions is that the problems lie in the government’s attitude to the talks and the substance of the policy proposed. After the elections we doubt that the government will undergo such a structural shift in its view on so many policies.”

Nomura also thinks that Hungary might not be able to keep this year's deficit target of 3.8% of GDP. “We do not view these forecasts as consistent or credible, and think the government must be basing them on very strong assumptions about revenues and the success rate of implementation of plans already announced,” Montalto wrote. Greater commitment to austerity after the elections will be too late, according to Nomura. (BBJ)