News / Europe

Hungary Condemns 'Junk Status' Credit Rating Downgrade

Hungarian Economy Minister Gyorgy Matolcsy looks on before his meeting with Hungarian economists in Budapest, November 25, 2011.
Hungarian Economy Minister Gyorgy Matolcsy looks on before his meeting with Hungarian economists in Budapest, November 25, 2011.

Hungary has condemned a decision by the Moody's Corporation to downgrade the country's credit rating to a non-investment "junk" status. Moody's decision was made after Hungary asked the International Monetary Fund and the European Union for possible financial aid as it suffers from the debt crisis in the 17-country eurozone, even though it does not use the euro currency.

Moody's, one of three international credit agencies, says uncertainty over the Hungarian government's ability to fulfill its debt reduction plans, and the country's vulnerability to external shocks, are among reasons for Thursday's downgrade.

It also notes that foreign investors hold over 60 percent of Hungary's bonds, of which two-thirds are in foreign currencies. A weaker Hungarian currency, the forint, makes it more expensive for Hungary to pay back these foreign-currency loans.

But the Hungarian Minister of State for National Economy, Zoltan Csefalvay, says that he views Moody's move to give Hungary's credit rating "junk" status as an unjustified financial attack on his nation.

"I am really surprised because if you look at the fundamentals of the Hungarian economy and the significant efforts we have made in the last one-and-half years, we reduced significantly the public debt. We reduced also the deficit. So this means that the Hungarian economy as a whole is in a very good shape," Csefalvay said.     

The minister adds that he realizes Hungary has to do more to, in his words "solve this problem" in the next few years.

Yet, analysts expected the downgrade. The head of research at Raiffeisen Bank, Zoltan Torok, has told VOA News that Hungary's junk status is only partly due to its exposure to the mounting debt crisis in the 17-nation eurozone.

He says there is also international concern about the right-of-center government's controversial fiscal policies.

They include nationalizing private pensions for some 14 billion dollars, a recently introduced "crisis tax" on predominantly foreign owned companies and a banking tax on financial institutions.

And, Torok says, especially international banks are forced by the government to potentially accept at least hundreds of millions of dollars in losses on foreign currency loans.  

"It made possible early repayment of ((for instance)) the Swiss franc mortgages at a preferential exchange rate. This means, that currently the Swiss franc-Hungarian forint exchange rate is about 250. And the government said that each bank has to make possible a repayment at a preferential rate of 180. And all these losses should be taken by the banks," Torok said.  

Eight banks have urged the EU's executive body, the European Commission, to intervene and Hungary's banks also asked the Constitutional Court to stop the debt-relief program. Hungarian authorities raided banks this week for allegedly undermining the loan arrangements.       

Moody's downgrade adds to the series of setbacks for banks and Hungary as a whole.

Hungary was in the 1990s the darling of foreign investments in the emerging countries of Central and Eastern Europe. But it later faced the region's highest debt, some 80 percent of gross domestic product at the end of 2010, and other economic turmoil.

Those troubles were partly due to heavy expenditures on cradle-to-grave social security, a lack of structural reforms, and the global financial crisis.    

In 2008 Hungary became the first European Union nation to receive a 25-billion-dollar rescue package from the International Monetary Fund, EU and World Bank.   

Recently elected Prime Minister Viktor Orban broke off talks with the IMF and EU on a new credit-line, saying Hungary would no longer accept what he called “diktats” from these institutions in future negotiations.  

Mr. Orban especially opposes austerity measures and other tough reforms often associated with IMF-led loans.

But with the Hungarian forint now the world's worst performing currency, and Europe in turmoil, the government again turned to the IMF and EU last week to receive precautionary financial assistance, admits Minister Csefalvay.

"I think Hungary is able to finance itself on the markets. But a safety net gives an additional security and additional safety. And ((in)) particular in this very, very turbulent time, the country needs this kind of safety net," Csefalvay said.

Moody's says the request for some kind of assistance from the International Monetary Fund and the European Union "illustrates the funding challenges" facing this nation of 10 million people.

Two other agencies, Fitch and Standard and Poor's, are also considering downgrading Hungary's credit rating, but still give the government some time.    

Hungary's plight also affects other nations in Central and Eastern Europe. After the announced Hungarian downgrade, weakening of national currencies were seen in Poland and the Czech Republic.

You May Like

Computer Crash Halts US Visa, Passport Operation

Problems with database have resulted in extensive backlog of applications, affected State Department's consular offices all over the world More

Migrant Issues Close to Home Spur Groups to Take Action

Groups placing water, food in the desert, or aiding detainees after release, have one common goal: no more deaths of migrants crossing illegally into the US More

World Bank: Boko Haram Stalls African Aid Projects

Islamist group’s terrorism sets back agriculture, health efforts in Cameroon, Chad and Nigeria More

This forum has been closed.
Comments
     
There are no comments in this forum. Be first and add one

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Israel Targets Gaza Supply Tunnelsi
X
July 24, 2014 4:42 AM
The Israeli military has launched a ground operation in Gaza to destroy the myriad tunnels that may have been used to smuggle weapons to Hamas. VOA's Zlatica Hoke reports that could mean more hardship for the people of Gaza, who obtain some of their essential supplies through these underground passages
Video

Video Israel Targets Gaza Supply Tunnels

The Israeli military has launched a ground operation in Gaza to destroy the myriad tunnels that may have been used to smuggle weapons to Hamas. VOA's Zlatica Hoke reports that could mean more hardship for the people of Gaza, who obtain some of their essential supplies through these underground passages
Video

Video MH17's 'Black Boxes' Could Reveal Crash Details

The government of Malaysia now has custody of the cockpit voice and flight data recorders from Malaysia Airlines Flight 17, which was hit by a missile over Ukraine before crashing last week. As VOA's Carolyn Presutti reports, the so-called black boxes may hold information about the final minutes of the flight.
Video

Video Living in the Shadows Panel Discussion

Following a screening of the new VOA documentary, "AIDS - Living in the Shadows," at the World AIDS conference in Melbourne, a panel discussed the film and how to combat the stigma associated with HIV/AIDS.
Video

Video IAEA: Iran Turns its Enriched Uranium Into Less Harmful Form

Iran has converted its stockpiles of enriched uranium into a less dangerous form that is more difficult to use for nuclear weapons, according to the United Nations’ Atomic Energy Agency. The move complies with an interim deal reached with Western powers on Iran's nuclear program last year, in exchange for easing of sanctions. Henry Ridgwell reports for VOA from London.
Video

Video Relic of Saint Draws Catholics Worried About Immigration Issue

A Roman Catholic saint who is a figure of devotion for those crossing the border into the United States is attracting believers concerned about the plight of undocumented immigrants. Mike O'Sullivan reports from Los Angeles, where a relic of Saint Toribio has drawn thousands to local churches.
Video

Video US Awards Medal of Honor for Heroics in Bloodiest of Afghan Battles

U.S. combat troops are withdrawing from Afghanistan, on pace to leave the country by the end of this year. But on Monday, U.S. President Barack Obama took time to honor a soldier whose actions while under fire in Afghanistan earned him the Medal of Honor. VOA's Jeff Seldin has more from the Pentagon.
Video

Video Ukraine Rebels Surrender MH17 Black Boxes

After days of negotiations, a senior separatist leader handed over two black boxes from an airliner downed over eastern Ukraine to Malaysian experts early Tuesday. While on Monday, the U.N. Security Council unanimously demanded that armed groups controlling the crash site allow safe and unrestricted access to the wreckage.
Video

Video In Cambodia, HIV Diagnosis Brings Deadly Shame

Although HIV/AIDS is now a treatable condition, a positive diagnosis is still a life altering experience. In Cambodia, people living with HIV are often disowned by friends, family and the community. This humiliation can be unbearable. We bring you one Cambodian woman’s struggle to overcome a life tragedy and her own HIV positive diagnosis.

AppleAndroid