The Hungarian government has made a deal with the European Central Bank to borrow up to €5 billion so that it does not become the next country to become a victim of the ongoing financial crisis. Hungary’s real estate and financial markets have slowed dramatically in the past several months and the country needs the funds to service debts denominated in currencies other than the Hungarian forint.
Interest rates in the country are relatively high at 8.5 percent, so many borrowers have taken loans in other currencies with lower rates. Approximately 30 percent of the public debt and 60 percent of business loans are currently denominated in foreign currencies. This means that Hungary is very vulnerable to a drop in the value of the forint.
Andras Simor, governor of the Central Bank of Hungary, said that the fundamentals of the economy have improved over the past two years. “That doesn’t mean we should sit back and say ‘Let’s wait until the international environment gets better again,”‘ Simor said. “We have to adjust ourselves to the new environment, and that is exactly what we are doing.”
Hungary has a strong export driven economy, which will hit the country particularly hard if a worldwide economic slowdown or recession occurs. The government has recently revised its growth forecast for 2008 to 1.8 percent, from previous estimate of 2.4 percent.
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