International Monetary Fund, European Union confirm that Hungary has asked for 'precautionary' financial support; country, whose credit rating is one notch above junk status, says it needs a safety net but no new loans

Cindy Allen

Cindy Allen

BUDAPEST, Hungary , November 21, 2011 () – The International Monetary Fund and the European Union said Monday they were considering a request from Hungary for "precautionary" financial support.

With its credit rating just one step from junk status, Hungary announced last week it would seek a "safety net" — but no new loans — from international lenders to help support economic growth.

IMF chief Christine Lagarde and the European Commission, the EU executive, both issued statements Monday saying that Hungarian authorities had asked for "possible financial assistance." Hungary hopes a new credit line will boost investor confidence and stabilize the country's finances.

In 2008, during a Socialist government, Hungary became the first EU member to receive an IMF-led bailout, a euro20 billion loan to avoid defaulting on its debts. Last year, however, Prime Minister Viktor Orban and Economy Minister Gyorgy Matolcsy cut ties with the IMF and implemented a series of controversial economic policies, such as windfall taxes on the telecommunications, banking and other sectors, in a desperate attempt to increase state revenues while avoiding unpopular austerity measures.

Orban, Matolcsy and other government officials have been very critical of the IMF, so having to seek support from the Washington-based fund was considered a blow to the administration's political integrity.

Still, the new IMF-EU deal, which the government said could be agreed upon in early 2012, is far from certain, because Orban wants Hungary to maintain its "free hand" to set economic policy, a condition the lenders are highly unlikely to accept.

Despite the political U-turn, Janos Lazar, head of the governing Fidesz party's parliamentary faction, said Monday that Matolcsy enjoyed "100 percent" support among government lawmakers, temporarily cooling expectations that the minister's credibility problems could soon force him out.

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