Since our last post on Hungary which was less than a week ago on December 30, 2011, economic conditions there have gone from bad to worse. The Forint has continued to weaken and the equity market has dropped over 7% so far this week, making it the 2nd worst performer after Cyprus:
Here's the line chart of the benchmark Hungarian Traded Index going back to the beginning of 2011:
And here's the USDHUF cross over the same time frame:
In both our
December 30th post and our
December 22nd post, we discussed how Hungary was driving a hard bargain with the IMF and EU over negotiations concerning economic policies and the continuation of financial assistance. As a result of the ongoing deterioration of both the stock market and the currency, the latest news now indicates that the Hungarians are getting ready to cave.
From Bloomberg Businessweek:
Jan. 5 (Bloomberg) -- Hungary is ready to discuss conditions for an International Monetary Fund loan and wants to reach a deal “quickly,” the government said after the forint dropped to a record against the euro and a debt sale fell short.
The Cabinet is ready to start negotiations on a standby loan agreement with the IMF and the European Union, Tamas Fellegi, Hungary’s chief negotiator, told reporters in Budapest today. The government wants a precautionary loan to tap only if market conditions require it, he said.
“The government is completely aware of the stakes of financial talks with the IMF and the European Commission,” Fellegi said. “We want a quick agreement.”
The quotes from the Hungarians in that article reek of desperation and it will be interesting to see how much crow they will be forced to eat by the Europeans and the IMF. I doubt they will be forced to repeal the recently passed law that weakened central bank autonomy, but I would not be surprised if it is altered, either on paper on in the course of its implementation.
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