IMF Is No Cure-All for Hungary

„Markets and Hungary’s political opposition applauded the government’s decision to start talks on a fallback package with the International Monetary Fund, but the heavily indebted country isn’t out of the woods yet. Hungary still is a likely candidate for a sovereign-rating downgrade by one or more of the leading international rating firms, which would lower its credit rating to junk. And while getting the IMF involved was an effective tool for buying some time, analysts still think plenty of Hungary-specific problems remain.

»Fundamentals in Hungary remain poor regardless of an IMF deal, and we see the forint continuing to underperform as it did in 2008-2009 and September 2011«, Brown Brothers Harriman said in a comment.

The government hasn’t been very specific about what it wants out of renewed IMF cooperation, and this isn’t helping either. The government insists that any agreement won’t contribute to elevating public debt, but it also says that it won’t give up its financial sovereignty and accept external control over its operation. Hungary is most likely looking for a precautionary stand-by agreement, said Royal Bank of Scotland currency strategist Timothy Ash. »This is not IMF money with no strings attached, despite the comments from the government and the prime minister«, he said.”