The International Monetary Fund, the European Union and World Bank have agreed to a $25 billion economic rescue package for Hungary to strengthen confidence in its economy. It has been described as the largest financial aid measure for an emerging-market economy since the start of the worldwide financial troubles, and the first for an EU-member country. Stefan Bos reports for VOA from Budapest on the reasons for the package and its expected impact.
They still sing Hungarian folksongs while baking bread and cookies at an old pensioners club in Budapest. But they may soon sing the blues when hearing of government plans to freeze or reduce their pensions.
Hungary's Socialist-led government also wants to suspend salary bonuses for state employees.
Cutting spending is a key condition for Hungary to receive more than $25 billion in international aid as it struggles with the worst global financial crisis in 80 years.
The International Monetary Fund says it will grant Hungary a standby loan of nearly $16 billion while the European Union has offered over $8 billion and the World Bank more than $1 billion.
Hungary is particularly hard hit. Last year it had Europe's largest budget deficit, with most of its overspending on social benefits.
In addition, most households took loans and mortgages in foreign currencies, such as euros, Swiss francs or Japanese yen, because interest rates were better. With the Hungarian currency, the forint, plunging to record lows, many Hungarians are unable to pay-off their financial obligations.
But Hungary's main center-right opposition party, Fidesz, has criticized the government for accepting the financial rescue package, saying it could compromise the country's sovereignty.
Hungarian Prime Minister Ferenc Gyurcsany shrugs off this criticism. He says the loans Hungary receives will not restrict the country's right to make its own political decisions and introduce reforms.
"We will remain an independent country," he added.
But Mr. Gyurcsany admits his government can "not take up the responsibility to pay automatically 13th month wages and pensions, because we do not know from where to cover these expenses."
One in five Hungarians, about 1.5 million people, are expected to be impacted by the measures.
Hungarian pensioners find it difficult to prepare for the upcoming holiday season without their bonus extra month's pay.
"We are always counting how many nights we have to sleep to receive the 13th month pension," said one woman.
But bread-and-butter concerns seem far removed from the daily reality of traders at the Budapest Stock Exchange, seen as a key indicator of Hungary's overall economic situation.
Men in suits are glued to their computers as they try to cope with unprecedented volatility in Hungary's stock market. The Hungarian forint and the Budapest Stock Exchange were both significantly higher Wednesday, but nobody knows for how long after weeks of turmoil.
Hungary's financial situation is closely monitored by Europe's other former Communist countries, where governments have slashed economic growth forecasts and expect budget revenues to dwindle. Analysts say it comes at a time when their ability to borrow more on international debt markets has been squeezed by the global credit crunch.
The larger-than-expected rescue for Hungary, the biggest for an emerging market economy since the global crisis began, is the first for an EU member. It also dwarfs the $2 billion and more than $16 billion sums offered by the IMF earlier to fellow strugglers Iceland and Ukraine.