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Hungary Pledges to Seek Quick Deal With I.M.F.

January 5, 2012 by Leave a Comment

BUDAPEST — Hungary pledged on Thursday to seek a fast agreement with international lenders to shore up its financial markets as its currency and bonds plunged further in a deepening crisis surrounding the government’s policy course.

Officials were forced to cut the value of a treasury bill auction and some analysts said the central bank might have to raise interest rates soon to halt the sell-off, an emergency move that would mirror steps it took in 2008.

Hungary sought €20 billion, or about $26 billion, from the International Monetary Fund and the European Union in a bailout three years ago. But the new conservative government only just came back to the table in November, after saying in mid-2010 that it did not need any new agreement.

Its minister in charge of the talks, Tamas Fellegi, said Thursday that the government now wanted to strike a new funding deal “as soon as possible.” He said it was ready to discuss any proposal made by lenders, and would accept them if they are in the interest of the country.

“We are ready to negotiate without preconditions, and we are ready to discuss everything at the negotiating table,” he said.

He added that Hungary would accept a precautionary standby agreement from the I.M.F., but would not draw on any funds made available unless market conditions make it necessary.

Hungary, which like much of Europe is facing a possible recession, must roll over nearly 5 billion euros worth of external debt this year — on top of maturing debt denominated in forints — as it begins repaying the I.M.F./E.U. loan that saved it from financial collapse in 2008.

Since sweeping to power in 2010, Prime Minister Viktor Orban’s Fidesz party has tightened its grip on the media and the top constitutional court, taken over private pension funds and slapped Europe’s biggest tax on banks — prompting a series of international protests and unnerving markets.

After the forint’s fall to a new record low versus the euro on Thursday, and a further jump in credit insurance costs, Mr. Fellegi said the government was clear about the seriousness of the situation. He added that a weaker forint was a serious problem with regard to repaying debt.

But investors continued to ditch Hungarian assets as they fear the talks with lenders will be very hard, given the government’s unorthodox policies and its previous tough stance.

The forint briefly firmed after Mr. Fellegi’s comments but remained highly volatile while 5-year and 10-year bond yields fell by about 50 basis points to below 11 percent, after surging to 11.20 percent earlier in the day.

The state debt agency cut its sale of Treasury bills by 10 billion forints, or $40 million, after bids from investors fell short of the planned 45 billion forints and the yield surged — a sign of the trouble Budapest may face in securing funds in months ahead.

“On the I.M.F. front, Fellegi’s comments are aimed at providing re-assurance, but I think the market will adopt a seeing is believing approach, given that market trust in this administration is now at rock bottom levels,” Timothy Ash at Royal Bank of Scotland said.

“They will want to see the ink and fine detail on any I.M.F. agreement,” he said, and expect the I.M.F. and European Commission “to negotiate hard with the Hungarian side.”

Talks broke down last month over a law curbing the independence of the central bank, but Mr. Orban has refused to withdraw the legislation, defying E.U. demands.

Despite recent concessions offered by Hungarian policy makers, many investors fear it will be very hard politically for the prime minister to change his policies in a significant way, boding ill for negotiations.

Janos Lazar, the parliamentary group leader of Orban’s Fidesz party told the news agency MTI on Thursday that Hungary needed the guarantees provided by an international agreement to be able to finance its debt, but would accept only such compromises and solutions that served its own interests.

“The servile behavior which characterized previous governments is not justified because the revenues and expenditures of this country broadly match,” Mr. Lazar was cited as saying. “If our debt was not this high, the country would stand on its feet in a stable way.”

He told MTI that Fidesz was ready to approve legal changes or pass new legislation proposed by the government within the context of the planned aid talks, which Budapest expects to start officially later this month.

But Mr. Lazar also reiterated criticism of the central bank, saying it was not doing enough to help boost growth and back the government’s policies with monetary tools, unlike in 2008 when it bought mortgage notes and bonds on the secondary market.

The government has repeatedly criticized the bank for interest rates it considers to be too high, and for not doing more to boost lending to the economy.

The bank’s key base rate stands at 7 percent now, but analysts said the bank could be forced to raise it further if the forint’s slide continues.

While most analysts believe Hungary’s government will back down and eventually sign an agreement with lenders, some say this could require a deeper market crisis first.

“Again we are seeing shifts to get negotiations started and calm the market, but still a lot of feet dragging, but we are nowhere near the place where Orban will be U-turning on policy,” Peter Attard Montalto at Nomura said.

Article source: http://www.nytimes.com/2012/01/06/business/global/hungary-pledges-to-seek-quick-deal-with-imf.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Russian Bailout Talk Helps Buoy European Markets

December 16, 2011 by Leave a Comment

Spain, which along with Italy is a euro zone member whose debt problems reverberate across the region, provided a measure of relief by raising $7.8 billion in a debt auction in Madrid at a lower-than-expected interest rate. Demand was brisk, perhaps on optimism for the new, conservative government that is about to be sworn in, and also because it was one of the last big bond auctions in Europe before the year-end holiday lull.

The yield on Italy’s debt was also modestly lower in trading Thursday, as the government in Rome called a confidence vote for Friday on a new austerity package.

Meanwhile, the euro currency regained some of its recent losses against the dollar. Stocks in Europe and the United States were also broadly higher.

Helping to buoy the markets, Russia said Thursday that it might pledge up to $20 billion via the International Monetary Fund to lend support to the euro zone’s financial markets and economy.

After meeting with European Union leaders here, the Russian president, Dmitri A. Medvedev, said his country was “interested in the European Union’s preservation as a dynamic economic and political force” and would consider assistance via the I.M.F. Though Russian leaders and officials face criticism for the conduct of recent elections, they arrived at the meeting in a strong position, knowing that Europe was seeking help from Moscow as well as courting other countries, like China and Brazil.

Mr. Medvedev’s economic aide, Arkady V. Dvorkovich, said Russia would be ready immediately to let the I.M.F. keep $10 billion from a commitment made in 2009 that, he said, was due to be reimbursed.

A possible second loan from Russia of up to $10 billion was dependent on clearer plans emerging for the financing of a firewall for still-vulnerable euro zone nations like Italy and Spain, Mr. Dvorkovich added.

Although such amounts would be relatively modest compared with the hundreds of billions of dollars of rescue reserves that many economists say might be necessary to maintain investor confidence in the euro zone, analysts saw at least symbolic significance in the Russian offer.

“There has been a sort of strategic inversion in relations between Russia and the E.U.,” said Thomas Gomart of the Institute for International Relations in Paris. “In 1998, Russia defaulted, and around 14 years later, Russia is in a position to finance Europe. Psychologically, that is a very big change.”

While Russia might be willing to pitch in, the head of the European Central Bank on Thursday repeated his recent assertions that the central bank would not respond to widespread calls that it provide a financial firewall for the region’s debt crisis by more aggressively buying government bonds.

In a Berlin speech, the bank’s president, Mario Draghi, said that the euro zone’s “firewall” was supposed to be the bailout fund set up by European governments.

And yet plans to increase the financial firepower of that bailout fund, the European Financial Stability Facility, to 1 trillion euros ($1.3 trillion) — the target set by European Union leaders — have fallen short. The I.M.F. is expected to help make up some of the shortfall, but the fund is still waiting to hear the details of how the euro zone will put together a new contribution of up to 200 billion euros to the I.M.F.

Another European Union summit meeting on the crisis has been tentatively scheduled for the end of January or beginning of February.

Where some analysts see the European Central Bank as being more effective lately is in the new medium-term lending program for commercial banks that it announced last week. In the program, which goes into effect next week, the central bank will start providing banks loans for three years, compared with a previous maximum of about one year.

The central bank last week also cut its benchmark interest rate target to 1 percent from 1.25 percent.

Those moves, more than any new-found confidence in Spain, might help explain the success of Thursday’s Spanish bond auction. Charles Diebel, head of market strategy at Lloyds Banking Group in London, said demand was probably driven in part by banks’ taking advantage of low borrowing costs.

Stephen Castle reported from Brussels and David Jolly from Paris.

This article has been revised to reflect the following correction:

Correction: December 15, 2011

An earlier version of this article gave a wrong date for when the European Central Bank’s new medium-term bank financing program, announced last week, goes into effect. It is next week, not Thursday.

Article source: http://feeds.nytimes.com/click.phdo?i=5c7b996a7d9a21867f27eef1a2300e59

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Canada Leaving Kyoto Protocol on Climate Change

December 13, 2011 by Leave a Comment

Under that accord, major industrialized nations agreed to meet targets for reducing emissions, but mandates were not imposed on developing countries like Brazil, China, India and South Africa. The United States never ratified the treaty.

Canada did commit to the treaty, but the agreement has been fraying. Participants at a United Nations conference in Durban, South Africa, renewed it on Sunday but could not agree on a new accord to replace it.

Instead, the 200 nations represented at the conference agreed to begin a long-term process of negotiating a new treaty, but without resolving a core issue: whether its requirements will apply equally to all countries.

The decision by Canada’s Conservative Party government had long been expected. A Liberal Party government negotiated Canada’s entry into the agreement, but the Conservative government has never disguised its disdain for the treaty.

In announcing the decision, government officials indicated that the possibility of huge fines for Canada’s failure to meet emissions targets had also played a role.

“Kyoto, for Canada, is in the past,” the environment minister, Peter Kent, told reporters shortly after returning from South Africa. He added that Canada would work toward developing an agreement that includes targets for developing nations, particularly China and India.

“What we have to look at is all major emitters,” Mr. Kent said.

Under the Kyoto Protocol’s rules, Canada must formally give notice of its intention to withdraw by the end of this year or else face penalties after 2012.

The extent of those penalties, as well as Canada’s ability to redress its inability to meet the treaty’s emission reduction targets, is a matter of some debate.

Mr. Kent said Canada could meet its commitment only through extreme measures, like pulling all motor vehicles from its roads and shutting heat off to every building in the country. He said the Liberal Party had agreed to the treaty “without any regard as to how it would be fulfilled.”

He also said the failure to meet the targets would have cost Canada $14 billion in penalties.

Other estimates, however, put the figure at $6 billion to $9 billion. Matt Horne, the director of climate change at the Pembina Institute, a Canadian environmental group, said the financial penalties might have been further reduced by agreeing to additional reductions. He also dismissed Mr. Kent’s assertions about the steps that Canada would have had to have taken to meet its commitments as extreme misrepresentations.

“It’s not a surprise that it happened,” Mr. Horne said of the government’s decision to withdraw from the treaty. “But it is a bit of surprise that it happened pretty much as they got off the plane from Durban.”

Article source: http://feeds.nytimes.com/click.phdo?i=682320921c739638f3cc845eb03ae301

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IHT Special Report: Central Europe: Staying Power in Central Europe

May 29, 2011 by Leave a Comment

The rate of recovery is patchy though, with signs of growing divergences in Central Europe, the Baltic states and southeastern Europe, according to recent reports from the European Bank for Reconstruction and Development and the World Bank.

Estonia, Poland and Slovakia are forging ahead, with estimated growth rates of nearly 4 percent this year. The Polish economy has been sustained by resilient domestic demand and credit markets. Still, the E.B.R.D. warns that household consumption could be hit in Poland by a persistently high unemployment rate of nearly 10 percent. Meanwhile, Latvia and Lithuania are still struggling after the excessive credit boom before the global financial crisis, when getting mortgages was easy, followed by fiscal retrenchment, when banks tightened credit rules.

In Hungary, the E.B.R.D. expects growth to strengthen modestly this year to 1.7 percent from 0.8 percent last year. It has criticized Prime Minister Viktor Orban’s conservative government for failing to implement a wide-ranging consolidation program aimed primarily at bring the deficit under control and for lacking a credible medium-term strategy. The government’s “crises taxes” for the energy and telecommunications sectors are also regarded by foreign investors as discriminatory and could “unsettle investors,” the E.B.R.D. said.

For all these misgivings, Central Europe as a region is forecast to achieve average growth of 3 percent this year, according to the World Bank.

The World Bank singles out Poland as one of the best performers in the region. “The main reasons for that are solid consumption, deep integration with E.U. markets and the good absorption of E.U. funds,” said Peter Harrold, the World Bank’s country director for Central Europe and the Baltic countries.

Polish economists say there is another reason why Poland may be faring relatively well: the role of the private sector.

“The private sector plays a crucial role,” said Ewa Balcerowicz, director of CASE, the Center for Social and Economic Research, in Warsaw. “We reckon that it now contributes to 76 percent of gross domestic product and employs 74 percent of the labor force. That makes it one of the biggest in the region.”

“Shock therapy” economic reforms pushed through by Poland’s first post-communist government in the early 1990s cleared the way for private enterprise to take root, but the past helped, too. Poland was one of a few formerly communist countries in which peasants could own their land and small, independent trades were allowed. The tradition of private property was never destroyed.

Still, it was the speed of the introduction of a market economy that gave the private sector a real push.

The flip side of that, critics say, was that privatized industries and banks often ended up in foreign hands because Polish investors and entrepreneurs lacked the means to buy control.

“That was one of the downsides of the reforms,” said Leon Podkaminer, an economist at the Vienna Institute for International Economic Studies. “Ownership was not domestic. Forced privatization was aimed at helping to create domestic capitalism. But it had the effect of pushing ownership into foreign hands because there was not enough local capital.”

Yet over the past 20 years, an indigenous private sector has taken root in Poland and in other countries in the region as more people have acquired capital.

There are now 3.7 million registered private companies in Poland. Economists say this figure probably overstates reality because some failed companies suspend operations without deregistering. But even allowing for that, “in reality, there are about 2.1 million companies,” Ms. Balcerowicz said. Of these, “about 1.3 million are really small, employing sometimes just one or two people or family members. The remaining 800,000 employ more.”

This is where the private sector in Poland and elsewhere in the region has to make the leap from being locked in small niches to joining the league of small and medium-size companies that are the backbone of the western European, and notably German, economies.

Some analysts say private-sector companies in Poland are too cautious and risk averse, reluctant to take out loans and often lacking a long-term development and expansion plan. Managers are hobbled by too much bureaucracy, high labor costs and regulation. All these factors hinder growth and innovation, they say.

This is slowly changing as Polish companies develop links with German, Dutch, French, U.S. and British partners. These relationships give west European companies access to a pool of comparatively cheap and educated labor, while allowing Polish companies access to new technology, expertise and markets.

The relatively unimpaired state of the banking system in the region’s main economies is another plus. Because Polish banks in particular hewed to prudent credit policies before the global financial crisis, they suffered “no bubble in the mortgage market and the private sector was pretty much unscathed,” Ms. Balcerowicz said.

Although the economic crisis in their west European markets hurt the region’s exporters, trade has bounced back. Imports of goods to Eastern and Central Europe rose 22.7 percent last year, largely reflecting higher international prices of oil and other primary commodities, while exports rose by 23.1 percent, returning to pre-crisis levels by the end of 2010, according to the World Bank.

Indeed, exports are now running above their pre-crisis levels, except in the Czech Republic, Slovakia, Slovenia, Estonia and Latvia.

Article source: http://www.nytimes.com/2011/05/23/business/global/23iht-rbus-overview.html?partner=rss&emc=rss

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