Hungary’s Truculent Transaction Modes
The Budapest exchange fought to stay positive as IMF-EU compromise to allow program negotiations was again jeopardized by the Orban team’s insistence on imposing a transaction tax on the battered financial sector and applying it to central bank activities in defiance of Brussels rules. The monetary authority head continued to resist political criticism and overtures by dismissing the move as “dangerous and nonsensical” just as talks which had been suspended for previous steps to erode autonomy were to resume in Washington after preliminary gambits at the Bretton Woods institution spring meetings. The levy is designed to replace the special temporary one placed on banks after the Fidesz party assumed power, which along with its mortgage repayment plan at an artificially low exchange rate saddled them with a EUR 1 billion loss last year. The non-performing loan ratio is 15 percent, and S&P recently assigned the industry a high risk 7 score. Non-government credit has dwindled as foreign banks have withdrawn over EUR 10 billion, and non-bank institutional investors are now the biggest holders of local bonds in a concentrated mix of speculative hedge funds and diversified global houses like Templeton looking for yield advantage. The state development lender MFB has moved to expand its role by acquiring a cooperative network, and a separate agricultural window may soon be opened. The investment component of GDP is off sharply as recession is in the cards for 2012 with only a marginal pickup next year should the Eurozone crisis stabilize. The budget deficit should fall below the 3 percent critical threshold but public debt is still outsize at 80 percent of GDP with big IMF repayments for the 2008-09 rescue coming due. Inflation has dropped from the previous 5 percent level with the aid of reduced oil import costs which support a 2 percent of output current account surplus.
Romanian shares too are stuck in a flat range on an unprecedented round of government squabbling again placing the EUR 5 billion Fund facility in doubt as austerity targets are missed and the parliament pre-empts executive and judicial duties. President Basescu faces impeachment in a referendum for allegedly overstepping his bounds while the incumbent prime minister is under investigation for misrepresenting academic credentials. Elections already scheduled for November may be held earlier, delaying external assistance and dialogue until policymakers are designated. In Bulgaria poorly-performing stocks were lifted by a telecoms deal where Greece’s OTE will shed holdings, while the bond entry on the EMBI jumped with the first new issue in a decade which was snapped up on novelty value and fiscal and monetary caution that thus far has preempted resort to outside crisis aid. However Greek bank sales may soon follow the phone company as competitors contend with steep bad loan loads to pose a delayed discipline threat.
