Hungarys new prime minister Gordon Bajnai yesterday
said his government may consider extending or renegotiating its
$25.1 billion IMF-led programme, amid rising fears that his
fragile government could collapse before its one-year term
In an interview with Emerging Markets in Budapest,
Bajnai launched a spirited defence of tough new austerity
measures, as new data showed a sharper than expected economic
Bajnai said the governments reform plan had won the
widespread backing of financial markets and international
officials, including the IMF and EU authorities as well
as the majority of a divided public.
The government is already delivering on its promises
of swift and decisive action, he told Emerging
Markets. But it is not impossible that we would look
to extend or amend our IMF programme beyond 2010.
Recently things have been going in the right direction
albeit in a very fragile way.
His comments came as official figures released yesterday
show first quarter GDP contracted by 6.4% year-on-year
more than expected. The economy is expected to contract by 6%
Bajnai said that his governments reforms had exceeded
the demands of international creditors. Our programme
actually goes beyond the original IMF requirements for
structural reforms and budgetary discipline, he said.
An IMF mission, in Budapest this week for a quarterly review
of Hungarys performance, will decide on the disbursement
of a third tranche of the loan. IMF conditions require
Hungarys deficit does not exceed 3% of GDP, but reports
this week suggest the Fund may relax this to 3.9%, pending the
conclusion of talks on Monday.
Bajnai noted that Hungarys risk assessment has
improved recently, partly due to an improving international
finance market but also partly due to our policies. But
he added that the markets remain volatile, however, and
it is still early days.
While acknowledging public discontent over austerity
measures, Bajnai insisted that more than 70% of
Hungarians believe in the budget reforms.
Bajnai, a politically independent businessman and former
economics minister, lashed out at opposition politicians and
other critics of reform.
If the opposition dont want to bankrupt the
country, they will need to keep reasonable and rational
financial policies. Giving incentives carries a cost.
Anyone in their right mind knows what is fundamentally
possible. You cant reduce taxes without reducing
The centre-right opposition Fidesz party this week called
for Bajnais resignation and early elections, following a
proposal for a controversial new property tax from 2010. Fidesz
has said it will not support the new prime ministers
government, saying early elections are the only way of
restoring voters trust in politics.
The opposition is poised to win forthcoming elections to the
European parliament a fact analysts say could trigger
the governments demise. But Bajnai insisted his
government would survive the vote and that early elections
could thrust Hungary into political chaos. The
Socialist-led coalition has signed up to this programme and are
approving the measures. An election campaign now would bring
potentially damaging and prolonged insecurity, he