“Hungary has been hit hard by the global financial crisis because it has one of the most fragile economies in Europe due to high budget and current account deficits and heavy reliance on external financing ” It has felt the full effects of the crisis because of its huge balance of payments deficit at 5.5% of gross domestic product (GDP) but in particular the heavy reliance of foreign lending. The majority of mortgages in Hungary in the past few years were taken out in Swiss Francs instead of Hungarian Forint. Because of this Hungary was one of the first member states of the EU to receive a bailout from the International Monetary Fund (IMF).
Hungary received a total of $25.1 billion consisting of $16 billion from the IMF, €6.5 billion from the European Union and 1 billion from the World Bank announced on the 28th of October. In the wake of this bailout the Hungarian currency rose from 285 which was its lowest in two years to 255.39 Forint to the Euro in one day. The peak of 255.39 on Wednesday 29th has still not been reached again which shows that Hungary has a long way to go before they can recover from this downturn in the economy.
Many people have opposed the bailout because of the rather stringent controls included in the IMF loan. Included in this is an agreement that the Hungarian Government will keep an amount of SDR (special drawing rights) of 10.5 billion for the next seventeen months. It also includes a strategy to anchor macroeconomic polices. Some of the restrictive polices included are the clause to keep wages in the public sector constant and eliminating the extra monthly bonus for all public servants. This has caused unrest among the general public particularly when it was announced that 6.5 billion was to be given to banks, the majority foreign owned instead of the domestically owned companies who were also in need of some cash.
For the past few weeks we have monitored the fluctuations in the Hungarian Forint against the Euro to see if there...