Bloomberg | Jul 23, 2010
Standard & Poor’s said it may cut Hungary’s credit rating to junk after the collapse of talks with the International Monetary Fund and European Union. Moody’s Investors Service said it may also lower the country’s grade. The IMF and EU on July 17 suspended talks with the government without endorsing Prime Minister Viktor Orban’s plans to control the budget deficit. The creditors provided Hungary with a 20 billion-euro ($25.9 billion) rescue package in 2008, which had served to reassure investors. “We believe that without an EU/IMF program to anchor policy, Hungary is likely to face higher and more volatile funding costs, which in our view could weigh on financial sector balance sheets, the public finances, and economic growth,” S&P said today in a statement. A rating downgrade would raise the cost of borrowing for Hungary at a time when the country is struggling to repair investor confidence after ruling party officials in June compared the country’s economy with Greece. S&P rates Hungary BBB-, its lowest investment grade. The Moody’s rating is two steps higher at Baa1. S&P will lower Hungary’s rating if in the coming year it concludes “government policies are unlikely to result in a meaningful decline in public debt,” it said in the statement.
Hungary’s currency fell 1.1 percent to 286.83 per euro as of 3:15 p.m. in Budapest. The forint has dropped 8.1 percent in the past three months, making it the worst performer among more than 170 currencies tracked by Bloomberg. The cost of insuring Hungary’s government debt against default rose 14.5 basis points to 343, according to data provider CMA. “Running a higher budget deficit while losing your biggest potential supplier of capital isn’t a good mix,” said Kieran Curtis, who manages $2 billion in emerging market debt at Aviva Investors in London. “The market isn’t going to finance a higher budget deficit without an IMF agreement.” Hungary’s government said credit rating companies “don’t understand” that fiscal responsibility needn’t come at the expense of independent economic policy. “We’re going to continue a disciplined fiscal policy, which doesn’t equal the usual austerity policy that affects families and businesses,” the Economy Ministry said in an e- mailed response to questions from Bloomberg News.