Hungary’s Cloying Closeout Capers
Hungarian stocks scrambled for positive traction as the central bank again cut interest rates to 4 percent, as bankings were crushed on the Economy Minister’s vow to end FX mortgages with another conversion plan for the EUR 10 billion remaining, and the IMF was ordered to close its resident office as Brussels resumed condemnation of constitutional changes. Despite the forint’s fall through 300 to the euro and an almost 200 basis point yield jump to almost 7 percent for the 10-year bond the past two months, non-resident ownership has stuck at 40 percent of the total amid continued high sovereign vulnerability warnings from official and private analysts. The latest household debt forgiveness push follows OTP’s win in a court case that it duly disclosed risks, as its chief executive happened to sell a chunk of his shares with the populist announcement eying next spring’s elections. The Q1 budget deficit was almost 4 percent of GDP as additional financial transaction taxes could not bridge shrinking industrial output. International reserves dipped below $35 billion on Fund repayment as short-term debt coverage is only 65 percent and import sufficiency just six months. External private sector obligations bring the joint load to 150 percent of GDP and Magyar Telecom’s recent default triggered corporate bond shivers. Prime Minister Orban has ordered savings bank consolidation to compete with overseas-run units as he indefinitely delayed euro entry and lambasted the “Soviet-style” European parliament for its judicial independence and human rights criticism. Poland too continued rate relief with low inflation as GDP growth is mired at 1 percent with a 20 percent company bankruptcy rise which has ravaged the Warsaw exchange. The central bank has been intervening to bolster the zloty with additional backing from an IMF 2008 crisis contingency line, as many hedge funds short sovereign bonds. The Tusk government’s Civic Platform party is now outpolled in opinion readings by the opposition Law and Justice as it moved to suspend the statutory 55 percent of GDP debt ceiling in response to job creation and spending demands. Retail sales are flat and investment reflects the absence of last year’s headline sporting events. The state has slashed the private pension contribution and further backtracking which will transfer accounts to the pay as you go social security system was recently outlined short of outright nationalization to hit the institutional portfolio base and worker retirement.
In the Caucuses Georgia has featured at the top of fragility lists with dependence on Eurobond and non-resident deposit inflows. Net external liabilities are almost 100 percent of GDP according to the IMF with a double-digit current account gap otherwise cushioned by tourism and remittances. The new government headed by a wealthy business executive has pressed criminal investigations of President Saakashvili and his team as he prepares to leave office as fiscal and monetary policy may loosen during the transition closing out an era of US educated leadership.
