Parliament’s economic committee on Wednesday heard National Bank of Hungary governor Andras Simor, former finance minister Janos Veres, and Laszlo Andras Borbely, deputy head of national debt manager AKK, in connection with a Hungary-IMF/EU loan agreement signed in 2008.
Borbely said the motivation for securing the 2008 loan had nothing to do with Hungary’s international debt servicing, arguing that the AKK had had enough reserves for financing in the long run.
He noted that the credit crunch had hit Europe early in March that year, and, as a result, issuing plans had to be changed by dropping forint bond sales and increasing treasury and foreign currency securities issues so as to keep the system working.
The act of turning to the IMF by itself triggered a negative assessment on the market, he said.
Market players at the time had the impression of financial problems, as credit rating outlooks turned negative on Hungary, investment banks stopped purchasing state securities and some even started to sell them off, Borbely said.
Maria Makkai, director of the State Audit Office, commenting on an audit office report, said the AKK’s statement that the loan had not been motivated by debt-servicing needs could be confirmed.
The committee’s chairman, Antal Rogan, said the then-ruling Socialist Party and its government must have been aware of the “foreseeable, grave” implications of signing the 2008 deal.
Rogan, who also heads the parliamentary group of the ruling Fidesz party, said that although the Gyurcsany cabinet had not mentioned scrapping 13th month pension in a letter of intent to the IMF, they “must have known” that it would happen.
Talking to reporters, Veres labelled Rogan’s remarks a lie. He said that the Socialist government had initially calculated with a one-percent contraction in the economy in 2009, but Hungary’s export markets shrank and recession reached 7 percent, necessitating austerity.
Veres insisted at the hearing that no financial expert had criticised the deal since its execution in 2008. He added that all critical comments were politically motivated.
Veres argued that the agreement was necessitated by Hungary’s economic circumstances, and the government had sought to resolve financing problems, as well as to restore confidence while fencing off international speculation against the Hungarian currency through the deal.
defended a credit agreement Hungary made with the International Monetary Fund and the European Union at the height of the financial crisis before a parliamentary committee on Wednesday.
National Bank of Hungary governor Andras Simor said the credit agreement was signed at the height of the financial crisis and maintained it was in Hungary’s national interest, noting the NBH’s key role in the successful deal. He added that financing Hungary’s budget with long-term and foreign currency securities had become practically impossible from the autumn of 2008.
He reminded the committee members that, in the first week of October, 2008, the forint had weakened 10pc to the euro, the yield on ten-year government bonds was up 150bp, and some lenders could get foreign currency only with the assistance of the central bank.
The parents of Hungary’s foreign-owned banks did not take resources out of the country until the autumn of 2010, when Hungary terminated its agreement with the IMF/EU, he added.
Mr Simor said that, according to the central bank’s projections, Hungary would have defaulted on its debt if in December 2008, if it had not been able to make any bond issues, and the default would have come sooner if there had been no issues of discount T-bills.
Hungary turned to the IMF in 2008 after its bond markets locked up. The country’s current government has often criticised the credit agreement, a “Stand-By Arrangement”, because of the strict conditions it carried and the hasty manner in which it was concluded. At present, Hungary is seeking precautionary financial assistance from the IMF/EU.
