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Goldman's Desperate Attempt At Hungary Damage Control
Goldman Sachs to save the day...
Hungary - Greek-like crisis has already happened; Fidesz tries to free itself from campaign promises
Yesterday's comments by Fidesz vice-president Kósa alleged that Hungary stands on a brink of a sovereign default due to its very precarious budget situation and continuously appearing 'skeletons' in the fiscal accounts while Michaly Varga, a deputy PM, claimed again that the 'true' 2010 budget deficit is closer to 7%-7.5% of GDP rather than the 3.8% assumed in the IMF-led program or 4.3%-4.5% forecasted by the NBH. Given the seriousness of the situation, Kósa declared that within a week the new government will announce a two-year crisis management plan that would include deep constitutional and structural reforms. Nevertheless, Kósa did not withdraw the plans to lower taxes which was one of the key election promises. He also declared that countries that were successful at crisis management 'rejected the requirements of the World Bank and the IMF' and expected the European Union to foot the bill for a potential external rescue of Hungary.
On the same day, European Commission President Barroso urged the new Hungarian government to speed up fiscal consolidation and implement structural reforms that would help maintain long-term fiscal sustainability and support economic recovery.
The Hungarian PM, Victor Orban, followed with declarations that the new government is committed to restoring fiscal stability and that the new economic plan, to be published within 72 hours after revealing the budget report, will include structural measures to boost growth and competitiveness as well as significant tax cuts.
IMF mission chief is due to arrive in Budapest for informal talks with the government. His visit is not a part of a formal review mission, which was postponed because of the parliamentary elections.
COMMENT: We believe that yesterday's dramatic comments were intended for domestic consumption and were used to build a dramatic backdrop that would let Fidesz backtrack on a large share of its campaign promises and broadly continue with the fiscal policies of the previous government, as well as preparing the ground for another round of IMF talks. Exaggerating the state of public finances left by the previous government, pretty common as it is (the incoming UK government used very similar tactics), supports the arguments against fiscal expansion and, in the future, will back up the claims that the crisis management plan was successful in reducing public deficit. The party faces local elections in October and not following up on the election promises risks alienating the voters, while blaming the 'imminent crisis' and 'fiscal skeletons' helps it save its face. At the same time, inflating the deficit forecast gives it space for negotiations with the international lenders and increases the chances that the potential new program will allow for some fiscal loosening in 2010 and 2011.
The claim that the country is on a brink of sovereign default and risks following the Greek path does not hold up against the facts. Hungary has already faced a crisis and asked for IMF and EU assistance in late-2008. In this context, Hungary is some 18 months ahead of Greece. Next, Hungary is not an EMU member and by having its own currency and domestic and external debt benefits from having a captive investor base. Finally, Hungary still has access to the undisbursed tranches of the IMF/EU loans. Our analysis (New Markets Analyst 10/04) shows that under the current policies debt stock is stable and that the country will be able to rollover its maturing debt without a problem.
It seems that Fidesz has taken a major decision on the path of macroeconomic policy and is now preparing the stage for its announcement - first, by revealing the 'true' size of the deficit and, second, by following up with the two-year plan. We believe that the 'good scenario' is more likely, namely a new agreement with the IMF and the EU and broad continuity of the fiscal consolidation plans, although with some loosening due to the cost of the yet to be announced structural reforms and to accommodate some of the election promises. We continue to believe that a stabilization program is the most likely outcome, which should significantly reduce the perception of the Hungarian sovereign risk (for more information, please see New Markets Analyst 10/05).
The risk here is that the new government attempts to follow the Ukrainian and Romanian examples, leading to protracted and rocky discussions. The other risk is that the new government is too confident in its ability to influence the Forint (in earlier comments, Fidesz said that weaker currency will support Hungary's competitiveness) and may be careless in its communications (as shown by yesterday's comments from Kósa). The punishment from the market may come quickly and weakening of the currency beyond the pain level of banks and households (about EURHUF of 300) - which hold significant amounts of FX debt - would serve as a warning to the new government. Our research shows that among CE3 countries, Hungary is most exposed to risk sentiment and the widening of risk premia would hurt Hungary's growth.
The 'negative scenario' in which the new government abandons the IMF program and lets the fiscal situation get out of control would actually help fulfil the claims that the country is indeed unable to access financing; we find that unlikely, though.
The news that the IMF mission chief will hold informal talks with the new government is neutral. Such a visit had to happen regardless of the course of Fidesz's macroeconomic plans. IMF needs to learn more about these plans and both sides need to decide how they want to proceed. This should clarify the situation and help us know whether the next program is going to happen. We expect some follow-up news within the next couple of days.
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Walter Sobchak: You want a trillion dollars? I can get you a trillion dollars, believe me. There are ways, Dude. You don't wanna know about it, believe me.
The Dude: Yeah, but Walter...
Walter Sobchak: Hell, I can get you a trillion dollars by 3 o'clock this afternoon... interest free. These fucking amateurs.
LOL!
It's a show dog. With fucking papers, dude.
The Big Market: What in God's holy name are you blathering about?
GS: I'll tell you what we're blathering about... we've got information man! New shit has come to light! And shit... man, Hungary is shorting itself. Well sure, man. Look at it... a young trophy country, in the parlance of our times, you know, and it, uh, uh, owes money all over town, including to known pornographers, and that's cool... that's, that's cool, I'm, I'm saying, they needs money, man. And of course they're going to say that they didn't get it, because... they want more, man! Hungary's got to feed the monkey, I mean uh... hasn't that ever occurred to you, man? Sir?
I think there's also some sort of battle between the former government and the newly installed government.
However this doesnt mean they are not into trouble.
markets dont lie - they are gonna spin themselves 6 feet under.
Well fuck you GS. The shit is beyond belief out there, and the DD phones in Bank XX are, apparently, not working. So, fucking, no; everything is not all right.
The lemmings just don't understand, when they go to sell there is going to be absolutely no one to sell to. No reason for the phones to be working.
You are correct though, it's not alright for the lemmings, wait one day all these lemmings are going to call their US brokers and the lines are going to be all down or not answered.
Bank runs are slightly different than they were in the 30s but they are still just plain ole bank runs. Within time people are going to find out rather quickly how little FRNs are out there.
The people in the penthouse can get whoever they want on their phoneline.
The enslavement of the world by the banksters continues apace.
Birth death model added 250k jobs in the already shitty NFP,
LiesMan just swallowed his loose teeth.
Been to Hungary, done that... the most corrupt country i have visited to date. From the people to the police to those in upper government. They (almost) make southern Italy look like an honest bunch of crooks.
No love loss imho.
Kill the Squid
What will the algos do today?
Will liquidity vanish as they step aside from the falling knife? Yikes.