IMF-imposed Austerity in Hungary Includes Government Takeover of Private Pension Funds

Hungary is Fighting War of Financial Independence, Says Economy Minister

May 4, 2011

realdeal.hu - Hungary is fighting an economic revolution for financial independence in which the first step was "throwing out" the IMF and the second was the Szell Kalman Plan which can restore the dignity of the country, National Economy Minister Gyorgy Matolcsy said at a meeting of the Szechenyi Klub on Tuesday.

Hungary has fought its most difficult and most risky campaign as few thought there was life without the IMF, but "we did it and we did it well, on our own path, and we can reduce our state debt at our own pace," Matolcsy said.

The fight with the IMF was a "battle of life and death", he said. With the IMF, Hungary could not have introduced the bank levy, crisis taxes or continued the reform of the pension system, he added.

Matolcsy said that civil involvement in efforts to reduce the state debt was a "movement for freedom". He voiced optimism that the debt could be reduced to 50 percent of GDP by 2018, and added that the new constitution's stipulation that the state debt could not be raised above that ceiling was a "guarantee for financial independence backed by moral considerations".

Among participants of the meeting was Elemer Redly, a Catholic priest and head of department at the Catholic seminary of Gyor (W), proponent and founder of fund to receive donations offered to reduce the state debt.

Redly said that his initiative was not politically motivated, and added that he had paid his own contribution, one million forints (EUR 3,700).

"The sacrifice of the people in the street could trigger a moral renewal, without which no economic reform can succeed," Redly said.

The IMF led a EUR 20bn assistance package to the country at the height of the crisis late in 2008. Hungary returned to full market financing in the autumn of 2009 and Prime Minister Viktor Orban announced in the summer of 2010 that the country would not renew its standby arrangement with the IMF.

Moody's Says Hungary Likely Faces Further Austerity Steps to Contain Budget Deficit

May 5, 2011

realdeal.hu - Hungary's government may be forced to take extra fiscal steps in order to contain the budget deficit if its growth targets fail to materialise, an analyst with ratings agency Moody's told a conference in Prague.

Hungary's growth forecasts of 4-6 percent in 2014 seem too ambitious, Reuters reported Anthony Thomas, senior analyst in Moody's sovereign risk group, as saying.

"It's got quite an ambitious target aiming for a deficit of 1.9 percent of GDP by 2014, but that is based on quite strong growth," Thomas said. "It is just very difficult to see that materialising, which means that the government is probably going to have to take more measures in order to get the deficit down."

Moody's downgraded Hungary to Baa3 with a negative outlook in December, citing "a gradual but significant loss of financial strength", though the agency has since welcomed a package of subsidy cuts announced in the past few months.

The economy ministry has said the economy will grow by 3.1 percent this year before slowing to 3 percent in 2012, though it also said growth could reach 4.8 percent in two years' time should all the positive effects of structural reforms follow through.

The ministry has pledged to cut Hungary's public debt to 64 percent of gross domestic product by 2015 and its budget deficit to 1.9 percent by 2014.

The International Monetary Fund (IMF) said in mid April that Hungary's economy was expected grow by around 2.5 percent this year and by the same rate in 2012.

AXA to Lay Off Employees in Hungary Following Government Takeover of Pension Funds

March 24, 2011

realdeal.hu - Insurance group AXA has started a major reorganization -- including layoffs -- made necessary in part by the 96% fall in the number of its private pension fund members following the government's pension reforms at the end of last year.

The layoffs will mainly impact the company's pension fund operations, which was the group's most important business unit in Hungary.

AXA currently employs 800 people in Hungary.

Hungary to Cancel $7.5 Billion of Bonds on Pension Takeover

February 22, 2011

Bloomberg - Hungary will cancel about 1.5 trillion forint ($7.5 billion) of bonds after taking over the assets of privately managed pension funds to “immediately” cut indebtedness, according to the Debt Management Agency.

The agency known as AKK will receive the assets from mandatory pension funds from May, said Laszlo Buzas, its deputy chief executive officer. By canceling the bonds, the government will reduce Hungary’s debt by 5.5 percentage points from the current level of about 80 percent of gross domestic product, Buzas said in an interview from his office in Budapest today.

“The government has a very strong commitment to meet fiscal targets,” Buzas said.

Hungary, the most indebted eastern European Union member, is ranked one step above junk by Moody’s Investors Service, Standard & Poor’s and Fitch Ratings. All three have a negative outlook for Hungary, signaling they are more likely to reduce the rating than to raise it or keep it unchanged.

Taking pension assets under state control and imposing special taxes on industries including banking will help meet the goal of reducing the budget shortfall to less than 3 percent of gross domestic product this year, according to the government. The deficit may have reached 4.2 percent in 2010, Central Bank President Andras Simor told reporters yesterday.

‘Wouldn’t Touch’

“We had some communications from Fitch which said that probably they wouldn’t touch Hungary’s ratings this year,” Buzas said. A representative “doesn’t think Moody’s will change the ratings to a negative direction this year,” Buzas said, adding that he hadn’t had communication from Standard & Poor’s.

The forint traded at 272.04 per euro at 4:49 p.m. in Budapest, from 271.25 late yesterday. The currency has gained 2.4 percent this year, the best performance among more than 20 emerging-market currencies tracked by Bloomberg.

Edward Parker, Fitch’s head of emerging Europe sovereign ratings, wasn’t immediately available to comment.

“The negative outlook speaks to the medium term,” Dietmar Hornung, an analyst at Moody’s said by phone from Frankfurt today. “There’s nothing really imminent but we can move whenever we feel that it’s appropriate.”

Hungary’s credit-rating outlook hinges on the government’s plans to overhaul the economy, said Peter Bratincsak, who helped manage the equivalent of about $1.3 billion of private-pension assets invested in government debt at Allianz Fund Management in Budapest before the transfer to the state.

Orban’s Measures

Prime Minister Viktor Orban’s Cabinet is working on measures to keep the budget deficit from swelling as the effects of the temporary taxes wane. The government may approve spending cuts in health care, education and public transportation in addition to new taxes, Nepszava reported yesterday, without citing anyone. The plan may improve the budget balance by as much as 800 billion forint, the Budapest-based newspaper said.

“If the government presents a comprehensive overhaul and not just superficial measures, then I think the Hungarian story could really be sold,” Bratincsak said in a phone interview today. “If investors are disappointed with the measures, then I think we may see some selling. In case investors are convinced by the plans, this is mostly priced in but it would provide a bright long-term outlook.”

Hungary may sell Eurobonds as soon as this quarter to help repay debt that’s mostly due in the second half of this year, Buzas said, adding that the timing will depend on market conditions.

“We’re not in a hurry,” Buzas said.

Pension Assets

Hungary plans to raise 4 billion euros ($5.5 billion) in international sales this year, all of it to renew bonds maturing this year, Buzas said. The foreign-currency bonds are due for repayment in June, October and November.

The assets held by the mandatory pension funds total 3 trillion forint, which include domestic and international shares held both directly and via mutual funds.

The AKK will sell the shares with a view not to “disrupt” the market, Buzas said. The debt agency doesn’t know how much the shares are worth within the pension portfolio and hasn’t formulated an exact plan for their sale because they are still held by the pension funds, Buzas said.

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