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Hungary's “boxed in” government must reform

Parliament

Hungary's government, under siege by protesters demanding Prime Minister Ferenc Gyurcsány’s resignation, is „boxed in” and needs to complete budget cuts to save itself, said Moritz Kraemer of Standard & Poor's. „If the plan isn't enacted, the country will be in serious trouble,” said Kraemer, the managing director of S&P's sovereign ratings, in an interview today in Vienna. „There's no way back, that's the good news.” Gyurcsány has rejected growing calls to step down as police fought rioters for a second night in Budapest. The protests were sparked by a leaked tape in which he admitted the cabinet misled the public about the need to cut spending during the campaign for April general elections. S&P said yesterday that the violent demonstrations may lead to a lower rating for Hungary's debt. „Pretty much everything went wrong in Hungary economically that could go wrong, Kraemer said.

S&P rates Hungary's foreign currency debt BBB+, two steps above non-investment grade, with a „negative” outlook. Gyurcsány is seeking to cut the deficit from the equivalent of 10.1% of GDP this year to 3.2% in 2009 as part of preparations for eventual adoption of the euro. The government has pledged to raise taxes, boost regulated energy and drug prices and cut government jobs to reduce the shortfall. „We screwed it up, big time,” said Gyurcsány on the leaked tape of a meeting, on which he also admitted that his party lied about the severity of Hungary's economic problems. „The language he used was blunt but the economic situation was clearly pointed out by a lot of sources, including ourselves,” Kraemer said. „I don't think the government will fall. What it will do is enforce the split between left and right.” (Bloomberg)

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