Saturday, June 5, 2010

Hungary's U-Turn Statements: "Default" statements exaggerated & unwarranted

News Report:

June 4: Hungary in ‘Grave’ State, Official Says; Forint Falls

Just on 4th June, Peter Szijjarto, a spokesman for the prime minister said Hungary could face default and end up with a similar situation as Greece. But on the following day, the state secretary of Hungary said otherwise today and assured that the situation is consolidated and planned budget deficit can be met. The earlier statement could be an exaggeration as Hungary is nowhere near Greece, with debt/GDP and fiscal deficit at 79% and 4.5% respectively in 2010, as compared to Greece's 125% and 9% respectively. The numbers are also lower as compared to EU's 84% and 6.3% respectively.

In addition, Hungary proved that it could implement its budget cuts and managed to reduce its fiscal deficit from 9.3% in 2006 to only 4% in 2009. It is not even in the euro currency zone though a member of the European Union, thus it's not tied to the EUR currency, allowing more flexibility in its currency to boost its exports. Its exports include Audi cars, Nokia phones, Alcoa aluminium products etc.

So, what could have triggered the 'grave' statement made by the spokesman? Some commented that it's pure political rhetoric aiming to discredit the previous government as the new prime minister, Viktor Orban, had just taken office on 29 May 2010. The Orban government accused the previous government of lying and manipulating the government figures. Consequently, a panel was setup to analyze the true state of the economy. Results of the findings coupled with action plans to improve the state of its economy will be out this weekend. Economists at BNP, Moody, IMF and Nomura had commented that the 'default' statements are exaggerated or unwarranted.

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