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IMF offer to improve Hungary's assessment, boost financial market stability

The International Monetary Fund's offer on Monday to provide Hungary with “technical and financial” assistance will help the country's assessment and boost stability on financial markets in the short term, analysts told MTI.

It appears as if the market is reading into the announcement an increase in security and stability, not that the country is in a worse position than earlier thought, K&H Bank chief analyst György Barcza said.

Before, Hungary's government did less to ensure financial market stability in comparison with other European countries, now it is doing more, he said.

Barcza attributed the forint's sharp weakening on Thursday and Friday because its banks' reliance on foreign currency to finance their lending activities. The forint and the Korean won were the two emerging market currencies hit the worst by the financial market turmoil last week, because both countries' banks have high external financing requirements: Hungary's for Swiss francs and Korea's for dollars, he explained. Under its agreement with the IMF, Hungary can draw on foreign currency resources from the IMF in crisis situations, he added.

Concorde Securities' János Samu said the IMF's offer is a good solution in the short term. It will improve the country's assessment by foreign investors and protect it from outside speculators. It would be ideal if Hungary's politicians could take advantage of the short-term solution to work out structural measures that would reduce the country's vulnerability. A political consensus has to be formed on reducing the deficit further and rethinking the expenditure side of the budget, he said. (MTI – Econews)