Hungary has escaped financial collapse and can come off IMF aid, but the country is not completely in the clear yet and must stick to budget cuts if it is to adopt the euro, Prime Minister Gordon Bajnai told Reuters in an interview on Wednesday.
Bajnai said the global crisis has shown that having the euro gives stability and that Hungary needs to adopt the single currency as soon as possible. However, the country has to improve its competitiveness and return to sustainable growth before joining the euro zone. Hungary has no official euro target date.
“Hungary has turned away from the edge of the cliff. But now has to climb up the mountain. And this is a very difficult task,” Bajnai told Reuters. “And if we are not careful, we could roll back and fall off the edge of the cliff, so we need to keep this difficult but worthwhile path which we started.”
Bajnai said his government was determined to meet the budget deficit targets agreed with the International Monetary Fund (IMF) and the European Union for this year and next, under a $25 billion financing deal signed last year.
The prime minister said maintaining fiscal discipline would ensure Hungary's economy will be able to grow well above 3% after 2011.
Bajnai said Hungary could start discussing entry to the Exchange Rate Mechanism (ERM-2), the anteroom to the euro, only when there is sustained market and currency stability and clear signs of an economic recovery.
“For the time being I think we need to prove our case, we need to serve the confidence that the markets have given back to us and we need to show a positive track record in the next couple of months before being able to talk about this,” Bajnai said.
The prime minister noted that the government did not have formal discussions with the central bank and Brussels about ERM-2 entry and it would be too early to predict the timing of such discussions.
Bajnai's Socialist-backed government, which took office in April, has stabilized Hungary's finances and has regained some investor confidence.
“There is a reason to believe that if market conditions do not deteriorate significantly then Hungary will be able to fund itself from the markets,” Bajnai told Reuters.
The prime minister added an extension of the existing IMF/EU loan until October 2010, agreed last month, will provide a safety "buffer" even after next year's elections due in April or May.
The ruling Socialists are highly unpopular and are widely expected to lose next spring's parliamentary elections.
Hungary successfully issued a eurobond in July and Bajnai said the country could comfortably plan more foreign-bond issuance, but will only do so if it needs such financing.
“Luckily, life has also returned to the forint-denominated debt market and we can also fund ourselves in forint. We also need to keep a healthy mix of currencies in our debt management,” Bajnai said.
“So we can return to the (international) markets but we will only do so if we need to, there is no need to go out for PR reasons,” the prime minister added.
When asked if he would reconsider standing as a candidate for prime minister in 2010 elections Bajnai reiterated: “I've made it clear in the first speech that I had when I took this job, that I undertake this job for one year.” (MTI-ECONEWS)