New York/Warsaw: Hungary has "a good track record" managing fiscal crises and will take the steps needed even after a government official said the country may be at risk of defaulting, according to Moody's Investors Service.
"Hungary isn't the next Greece," Kristin Lindow, a senior vice president with the ratings company, said in a telephone interview on Friday from London. "Hungary has a good track record of doing what it needs to do when in trouble."
Hungarian bonds tumbled on Friday, pushing up borrowing costs by the most since October 2008, and the forint and stocks plunged after Peter Szijjarto, spokesman for Prime Minister Viktor Orban, said it's not "an exaggeration at all" to speculate that the nation may be unable to pay its debt.
The comments sparked concern that Europe's debt crisis is spreading after credit downgrades of Greece, Portugal and Spain.
The European Union pledged almost $1 trillion (Dh3.6 trillion) to the bloc's weakest economies last month after Greece's widening budget deficit threatened to undermine confidence in the euro.
"It's clear that the economy is in a very grave situation," Szijjarto said at a press conference in Budapest. "I don't think it's an exaggeration at all" to talk about a default, he said.
Orban took office on May 29 after winning elections by pledging to cut taxes and stimulate the economy. He failed last week to get EU approval for looser fiscal policy.
The extra yield investors demand to own Hungary's debt over US Treasuries rose 157 basis points, or 1.57 percentage point, to 476, according to JPMorgan Chase & Co's EMBI Global Index. The BUX Index of equities tumbled 3.3 per cent, while the forint fell 2.3 per cent to 288.73 per euro, the weakest level since June 2009.
Overspeaking
"The politician was over-speaking, which is typical for a new government, but it was ill considered," Lindow said. Moody's lowered Hungary's debt rating to Baa1, the third lowest investment grade, from A3 in March 2009 and has a negative outlook.
Hungary, the first EU nation to receive an international bailout during the credit crisis, has the equivalent of $26.9 billion of debt coming due this year, according to data compiled by Bloomberg.
The government's budget deficit could grow to as high as 7.5 per cent of gross domestic product this year, compared with a 3.8 per cent target set with the International Monetary Fund by the previous government, Mihaly Varga, Orban's chief of staff, told M1 television on May 30.
Orban is vowing to end austerity and cut taxes to help accelerate economic growth after the worst recession in 18 years. Former Hungarian Finance Minister Peter Oszko said yesterday the country is "in no way near default".
"While the outlook for that country remains poor, it does not quite have the potential to roil markets as much as Greece or the other peripheral Euro zone members," Win Thin, a senior currency strategist at Brown Brothers Harriman & Co, said in a report. "The Hungary story is bad, but the overall impact is likely to be limited."
"The new government is trying to say the picture is much uglier and we're going to work to clean the house," Luis Costa, an emerging market strategist at Citigroup in London.
Unfortunate comments
Hungarian State Secretary Mihaly Varga said recent comments about a possible default were "unfortunate".
The government's ability to finance itself "is not a question," he said at a news conference yesterday in Budapest.European Union Economic and Monetary Commissioner Olli Rehn said that suggestions of Hungary defaulting on its debt are "exaggerated" and such comments are "misleading," , adding that the country has made "serious progress" on its finances. Hungary's economy is recovering, Rehn said.
