The International Monetary Fund said Thursday it had awarded a loan of 12.3 billion dollars (15.7 billion dollars) to Hungary to help the country combat negative fallout from the global financial crisis.
The IMF executive board approved the loan, which was agreed with Hungary on October 28 on an emergency basis with about 4.9 billion euros (6.3 billion dollars) immediately available, the Washington-based multilateral institution said in a statement.
"The IMF arrangement is designed to facilitate the rapid reduction of financial market stress in Hungary, while supporting the country's longer-run economic goals by creating conditions necessary to facilitate appropriate reforms in government finances and in the banking sector," the 185-nation lender of last resort said.
The loan is a 24-month stand-by arrangement, approved under the IMF's fast-track Emergency Financing Mechanism procedures.
|A man enters the Western Railway Station in Budapest, in 2007.|
The stand-by arrangement allows an IMF member state to draw from the IMF's general funds to deal with a temporary financial crisis.
"Specifically, the IMF-supported economic program is based on two key objectives: to implement a substantial fiscal adjustment to ensure that the government's debt-financing needs will decline; and to maintain adequate liquidity and strong levels of capital in the banking system," the IMF said.
The remainder of the loan is to be disbursed in five installments subject to quarterly reviews.
"The recent international financial turmoil has increased the rollover risk of Hungary's external debt," the IMF said.
The IMF noted that its financial support, combined with the commitments by the European Union (6.5 billion euros, 8.4 billion dollars) and the World Bank (one billion euros, 1.3 billion dollars), total 20 billion dollars, or about 25.8 billion dollars, in financial support.
That combined financial lifeline "will provide Hungary with the amount of reserves that is sufficient to meet its external obligations, even in extreme market circumstances," the IMF said.
Hungary was among the first emerging market countries to suffer from the fallout of the global financial crisis that stemmed from a collapse in the US subprime mortgage sector in August 2007 and which accelerated sharply in September.
"Hungary's high external debt levels, which amounted to 97 percent of GDP (gross domestic product) at end-2007, and significant balance sheet mismatches, negatively affected investor appetite for Hungarian assets," the IMF said.
"Even though macroeconomic and financial policies had been strengthened since 2006, with substantial fiscal consolidation and tax administration improvements, Hungary was hit hard by the global deleveraging.
"Financial markets in Hungary have come under significant stress in recent weeks, reflecting the rise in perceptions of counterparty risk."
To reduce the debt, the IMF said that Hungary's 2009 budget must include measures such as a monthly salary freeze in the public sector and the suspension of 13th month bonuses for retirees drawing the highest pensions.
Hungary is the second country this year to obtain an IMF loan to face the challenges of the financial crisis. Ukraine was awarded a loan of 16.4 billion dollars (13 billion euros) on Wednesday.
Loans agreed with Iceland and Seychelles have yet to be submitted to the IMF executive board for approval.