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IMF, EU agree on 21 billion-euro rescue plan for Hungary

Text by AFP

Latest update : 2008-10-29

Hungary secured a 21 billion-euro rescue package from the IMF, the EU and the World Bank, to restore confidence in its badly hit economy at a time when investors are pulling back from the country's heavily exposed banking system.

WASHINGTON, Oct 28 (Reuters) - The International Monetary
Fund, the European Union and World Bank on Tuesday agreed to a
$25.1 billion economic rescue package for Hungary to bolster
confidence in its economy hit by the global financial crisis.

The IMF said in a statement it had reached an agreement
with Hungary for a $15.7 billion loan program (12.5 billion
euros), while the European Union stood ready with an additional
$8.1 billion in financing and the World Bank another $1.3
billion. The IMF loan will be disbursed over 17 months.

It is the biggest international rescue package for an
emerging market economy since the start of the current global
crisis and is the first for an EU-member country. Last week the
IMF approved a $2.1 billion deal for Iceland and a $16.5
billion program for Ukraine.

The IMF said its board could approve the Hungary deal in
early November under emergency rapid-response procedures
activated earlier this month as the credit market crisis spread
from the United States and Western Europe.

"The Hungarian authorities have developed a comprehensive
policy package that will bolster the economy's near-term
stability and improve its long-term growth potential," IMF
Managing Director Dominique Strauss-Kahn said in a statement.

"At the same time it is designed to restore investor
confidence and alleviate the stress experienced in recent weeks
in the Hungarian financial markets," he added.

The IMF financing is more than 10 times Hungary's IMF
quota, above the limit of three times the quota for countries
seeking to borrow. Each IMF member is assigned a quota based on
its size in the world economy, which determines its financial
commitment to the fund, its voting power, and has a bearing on
how much it can borrow from the global lender.

Hungary's economy has been battered by the financial crisis
because its banking system is heavily exposed to foreign
financing at a time when investors are pulling back from
developing economies worldwide.

Strauss-Kahn said the program should improve Hungary's
fiscal balance and safeguard its financial sector.

"Specifically, the package includes measures to maintain
adequate domestic and foreign currency liquidity, as well as
strong levels of capital, for the banking system," he said.

"Important measures in the fiscal area will reduce
government- financing needs and ensure longer-term debt
sustainability," Strauss-Kahn added.

Hungary's financial markets firmed on Tuesday on hopes of
the imminent financial help from the IMF, but its Prime
Minister Ferenc Gyurcsany warned the Central European country
is likely to slide into recession next year.

Meanwhile, the World Bank said it was working with Hungary
to tackle longer-term structural problems in its economy.

"Proposed World Bank assistance would support the design
and implementation of reforms in key areas, such as the
financial sector, fiscal management, and social sector
reforms," said Orsalia Kalantzopoulos, World Bank director for
Central Europe and Baltic countries.

"These measures would support the country's longer-term
stabilization and economic restructuring," she added.

Date created : 2008-10-29