Hungary struggles to save IMF deal

Hungary’s Premier Viktor Orban took a step back in the confrontation he had with central bank chief Andras Simor. The man is trying to restart discussions regarding an international bailout. The country received its third downgrade earlier today.

“The president can count on the government’s support, including our backing for him personally,” Orban told reporters after he met with Simor today in Budapest. The government admitted it was seeking an IMF agreement “as soon as possible” and will do “everything” in order to back up the central bank to stabilize the economy.

The International Monetary Fund and the European Union stopped any talks regarding a bailout because Orban refused to take back a new central bank regulation which had the ability to undermine the monetary independence. Moreover the new regulation was a threat to Simor’s authority. Yesterday, the forint fell drastically, reaching a record against the euro. As a result investors believe the IMF accord might get delayed.

“It’s clear Orban is retreating, the question is whether it’s enough,” Peter Duronelly, the man who is among those responsible for overseeing $1.5 billion in the Hungarian government being the chief investment officer at the Budapest Fund Management, explained in a phone interview today. “If EU leaders expect a total capitulation from Orban, then an agreement won’t be so simple or fast.”

Hungary lost the investment grade it had on foreign currency at Fitch Ratings earlier today. This was already the third downgrade the country received.

“The downgrade of Hungary’s ratings reflects further deterioration in the country’s fiscal and external financing environment and growth outlook, caused in part by further unorthodox economic policies which are undermining investor confidence and complicating the agreement of a new” settlement made with the IMF and the EU, Matteo Napolitano, a director in Fitch’s sovereign group, explained in a statement.

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