Hungary says it will forego IMF loan

BUDAPEST: Hungary will forego the next installment of an IMF loan and will postpone assistance offered by the European Union, Finance Minister Peter Oszko said Monday.

"Hungary will not draw on the next installment of its IMF loan and is preparing an agreement on postponing its next installment of a loan from the EU," Oszko said at a press conference following talks with an IMF-EU delegation.

Hard hit by the financial crisis, with investors shunning its markets, Hungary a year ago received a credit worth 20 billion euros (25.1 billion dollars) from the International Monetary Fund, the World Bank and the European Union.

The IMF-EU team said it backed the government's public deficit targets, pencilled in at 3.9 percent of output in 2009 and 3.8 percent in 2010, an election year.

The 2010 figure has been widely criticised by the opposition party Fidesz, tipped to win the poll, but is considered realistic by IMF delegation head James Morsink.

"We met with Fidesz leaders who said the deficit could rise to 7.0 percent, but as we see it, the 3.8 percent general government deficit is achievable in 2010," Morsink said.

Hungary has been in recession for five quarters, starting in the second quarter of 2008.

The government is forecasting a contraction of 6.7 percent this year and 0.6 percent in 2010, an improvement on an earlier projection of a 0.9 percent shrinkage.

The international bailout package helped stabilize the economy but at a heavy cost, as Prime Minister Gordon Bajnai was forced to introduce austerity measures.

But in a sign of returning investor confidence, Hungary successfully launched its first eurobond in July. Its key interest rate was cut to 7.0 percent from last October's 11.5 percent.

"Hungary has achieved good progress in containing public spending through numerous measures, which have supported the strong adjustment of the external imbalance, increased investor confidence, and contributed to a substantially improved access to market financing," EU Finance Commissioner Joaquin Almunia said in a statement.

So far Hungary has received 8.34 billion euros (12.5 billion dollars) of the IMF's 11.5-billion-euro facility and 5.5 billion euros of the EU's 6.5-billion-euro loan, set to expire next November.