Hungary could remain outside international debt markets in 2013, claims economy minister

By bne IntelliNews December 17, 2012

bne -

Looking forward to a "strategic alliance" with the central bank starting next year, Hungary could spend another year sitting out of the international debt markets, the country's economy minister claimed on December 15, despite a heavy redemption schedule of hard currency debt and claims from other officials that a Eurobond is likely in the first quarter.

"I am not certain that we need to issue foreign-currency denominated bonds on the international markets next year," Gyorgy Matolcsy told public radio station MR1-Kossuth, according to Bloomberg. "We can finance ourselves on the forint market."

That is at odds with a claim from Mihaly Varga - head of the country's International Monetary Fund (IMF) talks - on December 11 that Hungary "will surely test the markets in the first quarter". However, investors are unlikely to be shocked should it turn out Matolcsy is yet again trying to buy a little time and space.

Budapest last tapped the international market in May 2011. Since then, it has relied on local currency auctions to fund its borrowing needs as it has discussed a bailout with the IMF - a move forced by skyrocketing yields and a buckling currency at the end of last year. However, apparently confirming suspicion that the government had little real intent to accept the terms and conditions attached to a loan programme, those negotiations now look all but over. Meanwhile, Hungary is clearly keen to tap the emerging market bond rally, which has seen yields hit record lows for its Visegrad peers, albeit such a move would be taken as practical confirmation that no deal will be reached with the Washington-based lender.

Yet the risk of relying on forint debt is also high. Without accessing the international markets to pay off its maturing international obligations next year, Hungary would need to continue swap local currency at the central bank, draining reserves and therefore damaging investor confidence. The Magyar Nemzeti Bank's international reserves dropped to €33.87bn at the end of November, their lowest since February 2011, on the back of a maturing €1bn foreign currency bond and redemption of about €665m to the IMF under the previous 2008 loan programme. At the same time, the budget would be highly exposed to any drop for the forint.

That risk would be significant should the emerging market bond rally - driven by high global liquidity - run out of steam. That would leave investors with a picture in which there is little prospect of the IMF reining in Matolcsy's more "creative" economic policies, and a central bank - until now one of the government's sternest critics - that will play along.

Prime Minister Viktor Orban and his allies can hardly wait for the latter course of events. With the term of Governor Andras Simor - who has sternly opposed government pressure for rate cuts due to inflation risk - set to end in March, Matolcsy said in the same interview that the change of guard will allow the government to build a strategic alliance with the bank in order to boost the economy.

"I don't think that in these crisis years any central bank in the world would and could keep only one aspect in the forefront: the aspect of inflation," Matolcsy said, according to Reuters. "Just look at how the European Central Bank has switched to an entirely different monetary philosophy in the crisis years post-2008."

Orban is unlikely to allow the market to push him into appointing anyone that falls too far from the Fidesz tree, and Matolcsy's name is one of the most common to crop up in speculation. "There are many names floating around these days and weeks, but I myself have not received such a request," the minister said. "I am sure, as this has been mentioned, that next year Hungary's central bank will have a leadership that will be in a strategic partnership with the government."

Related Articles

UK demands for EU reform provoke fury in Visegrad

bne IntelliNews - The Visegrad states raised a chorus of objection on November 10 as the UK prime minister demanded his country's welfare system be allowed to discriminate between EU citizens. The ... more

Erste claims Hungary is breaking peace deal with banks

bne IntelliNews - Hungary will breach its February agreement with Erste Group if it makes the planned reduction in the bank tax conditional on increased lending, the Austrian lender's CEO ... more

Austria's Erste rides CEE recovery to swing to profit in Jan-Sep

bne IntelliNews - Erste Group Bank saw the continuing economic recovery across Central and Eastern Europe push its January-September financial results back into net profit of €764.2mn, the ... more

Register here to continue reading this article and 2 more for free or 12 months full access inc. Magazine and Weekly Newspaper for just $119/year.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

IntelliNews Pro subscribers click here

Thank you. Please complete your registration by confirming your email address. A confirmation email has been sent to the email address you provided.

Thank you for purchasing a bne IntelliNews subscription. We look forward to serving you as one of our paid subscribers. An email confirmation will be sent to the email address you have provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

If you have any questions please contact us at

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

IntelliNews Pro subscribers click here

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

Thank you. Please complete your registration by confirming your email address. The confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.