Tags: Hungary | No | EU | IMF | Bailouts

Hungary Says No to EU, IMF Bailouts

Tuesday, 03 Aug 2010 07:54 AM

Hungary’s new government appears determined to set its own economic agenda, even if doing so means giving up aid from the European Union and the International Monetary Fund.

The Hungarian government says it will adhere to the 2010 budget-deficit target — 3.8 percent of GDP — set under the terms of that loan agreement, but insists how it does so is nobody else’s business.

"It's an economic freedom fight," a senior official in the administration of Prime Minister Viktor Orban told The Wall Street Journal. "We are getting back the financial independence of the country."

Hungary’s resistance to the austerity measures advocated by the EU and IMF worries both organizations, which are currently trying to enforce budget cuts for other governments that were bailed out after amassing large public debts.

"It could be a very important precedent for other countries," says Mark Weisbrot, an economist at the Center for Economic and Policy Research. "There needs to be more flexibility and more rationality injected into these policies."

In 2008, the IMF and EU joined forces to lend $26.12 billion to Hungary, which has a national debt equivalent to about 80 percent of its annual gross domestic product and couldn’t raise funds during the credit crisis.

However, if Hungary does not form an agreement with the EU and IMF before this loan expires in October, the Hungarian government will be without a financial safety net as it begins repaying the bailout loans and meeting its other obligations next year.

One of the things Budapest wants to do is cut taxes, which are now among the EU's highest. It has already cut the corporate income tax on small and medium-size enterprises significantly, and plans to begin phasing in a 16 percent flat tax on personal incomes for all, the lowest in central and Eastern Europe.

The IMF and EU wants Hungary to make broader cost-cutting efforts that would reduce recurring government obligations.

Bloomberg reports that Greece’s austerity drive may pass its first test this week as a European Union-led mission prepares to dole out more rescue funds for a government trying to cut the euro region’s second-biggest budget gap and weather a recession.

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Hungary s new government appears determined to set its own economic agenda, even if doing so means giving up aid from the European Union and the International Monetary Fund. The Hungarian government says it will adhere to the 2010 budget-deficit target 3.8 percent of GDP...
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Tuesday, 03 Aug 2010 07:54 AM
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