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IMF tells Hungary further structural reforms needed

  Further structural reforms are necessary in Hungary, if the government wants to help create sustainable growth, IMF Managing Director Dominique Strauss-Kahn said at a press conference in Budapest on Tuesday after meeting with Prime Minister Ferenc Gyurcsány.


“Things are progressing as well as possible, but further steps must be taken,” Strauss-Kahn said. The government must decide which further economic steps to take, and if these are acceptable to the IMF, the fund will finance them.

Asked by MTI to elaborate on the necessary structural reforms, Strauss-Kahn named measures to strengthen oversight in the bank and financial sector, a more efficient labor market and a more fair tax system

The government should consider changing the projections in the 2009 budget, Strauss-Kahn said. The IMF’s fresh economic outlook, to be published within days, is much gloomier than the previous forecast, he added.

Gyurcsány said changes, reforms and other measures would be necessary in the coming months. The government has so far done what it agreed on with the IMF, but “it is clear that we are not at the end of the process.” “From day to day unexpected, projections that appear absolutely hellish arrive from the US, Europe, Germany, Spain,” Gyurcsány said. “The economic crisis will be deeper and longer than we earlier expected.”

Gyurcsány acknowledged the IMF’s assistance during a time of global crisis. “Until now, we have successfully reduced the effects of the global financial and economic crisis on Hungary, in which the IMF played an important and significant role,” he said.

Strauss-Kahn offered congratulations to Hungary’s government for its progress and for turning to the IMF in the first place. As a result the country “avoided an exchange rate crisis and there were no bank failures,” he said. Answering a question, Strauss-Kahn said there is no reason for worry about the forint’s exchange rate. The forint has stabilized at an expected level, he added.

Asked about possible tax cuts, he said there is no room for tax reductions in Hungary, but did not exclude the possibility of a reshuffling of taxes.

Strauss-Kahn said in a statement published in Budapest that recent rate cuts by the National Bank of Hungary (MNB) had been appropriate considering an expected fall in inflation and a consolidation in markets, but further cuts should be gradual. “Any further rate cuts should be gradual and cautious, and commensurate with improvements in investor confidence,” Strauss-Kahn said.

The IMF supports the central bank’s recent monetary policy decisions, the statement said. The MNB’s Monetary Council will hold its next rate-setting meeting on Monday, January 19. The bank has cut interest rates by a combined 150bp to 10.00% in three steps after an extraordinary 300bp hike on October 22. (MTI-Eco)