Hungary reaches crunch time with the IMF this week as it tries to win a funding deal to prevent a market meltdown after a series of policy mistakes sapped investor confidence and the government’s domestic support.
Conservative Prime Minister Viktor Orban fell out with international lenders after they rejected several of his policies but plunging financial markets and criticism from abroad have forced him to backtrack.
Thousands of Hungarians have protested new laws that are seen as undemocratic and the forint’s slide to previously unseen levels has stirred fears over their personal finances.
A leading tabloid “Bors” said on its front page on Sunday: “If default comes, we are finished in half a year. Only the IMF can save us from collapse.”
The head of Hungary’s negotiating team, Tamas Fellegi, is in Washington this week with a mandate from Orban to accept a precautionary International Monetary Fund loan with stricter conditions than he originally wanted. Aid talks with the European Union are expected to follow.
Zoltan Kosa said his Exclusive Change chain of 280 exchange kiosks saw a jump in turnover whenever the forint exchange rate fluctuated wildly last week. He said people bought euros, U.S. dollars, pounds, Swiss francs and even Norwegian crowns.
“There’s no panic, but there is a palpable fear among ordinary people,” Kosa said.
Other people who had bought euros when the forint was stronger have begun to cash in, he said.
Many Hungarians have home loans denominated in foreign currencies and their repayments have risen sharply.
“For me, what’s at stake is my mortgage. I have a small apartment… with a small mortgage that grew pretty huge in the past few months. This strong euro, or weak forint… it’s killing me,” said Gabriella Feledi, 29, a hair dresser.
FLEXING HIS MUSCLES
Orban, whose Fidesz party shot to power in 2010 with the strongest majority in post-communist history, has tried to strengthen his influence over media and public institutions including the central bank.
This has angered businesses and investors and helped lose him almost half of his supporters at home. Over half of all Hungarians say they would no longer vote for any political party.
Orban has said all issues are up for discussion in the talks with the IMF and the EU but they are still expected to be difficult.
The most thorny subject is a new law which the lenders and the European Central Bank say curbs the Hungarian central bank’s independence.
IMF Managing Director Christine Lagarde said over the weekend she hoped “the Hungarian authorities will be very keen to have their legislation in compliance with European regulation as well, particularly when it concerns the independence of their central bank.”
Orban said the same day he saw no legal problem with the law, especially because the EU did not complain in 2004 when a previous Socialist government had enlarged the Monetary Council, one of the new measures.
The government is not planning to draw on the money but with about 4 trillion forints ($16.07 billion) worth of debt to roll over this year, including repayments of a 2008 IMF/EU deal, analysts say the new deal is crucial for avoiding a market collapse.
Hungary’s debt rating was cut to BB+ by Fitch on Friday, the third downgrade to “junk” by international rating agencies since November.
Markets calmed down on Monday on hopes of a new IMF deal, and the forint firmed to 315 from last week’s record low of 324.20.
Many Hungarians and analysts expect Orban will eventually do everything necessary to come up with a deal.
“It’s foolish to think there will be a default. It’s just the Hungarian way, coming up with a solution in the very last minute,” said Geza Kis, 50, a chauffeur.
“Orban is flexing his muscles because he thinks people like that at home, but we know it’s just a show.”