IMF prepares to help Hungary and Ukraine
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Friday, October 17, 2008
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The International Monetary Fund (IMF) is preparing a series of loans to both Hungary and Ukraine as financial problems are hitting the two countries. Hungary has already received a €5 billion credit line from the European Central Bank (ECB). Ukraine is seeking a loan of up to US$14 billion.
The credit line to Hungary will be used to cover banks’ shortage of euros. Hungary has a severe debt problem with them posting an account deficit of €5.3 billion or 4.9% of GDP this year. As a result of this, Hungary is unable to find suitable credit to store up its supply of euros.
"We are in close dialogue with the Hungarian authorities and the EU to discuss further responses to the current challenges, including possible technical and financial support by the IMF", said Dominique Strauss-Kahn, Managing Director of the IMF. "I have informed the authorities that the IMF stands ready to assist their efforts. We will provide technical assistance as needed and, in the context of a supportive policy setting, are ready to undertake [decisions] on possible financial assistance, responding rapidly."
Ukraine's Finance Minister Viktor Pynzenyk met with an IMF team on Thursday. In a statement, Pynzenyk said "the parties discussed a situation of influence the world financial crisis had on the economy of Ukraine." It is not yet known how much the IMF is expected to lend to Ukraine but it is expected to be between $3 billion to $14 billion. It is also not known what type of conditions might be placed on the loan.
In addition to financial uncertainty, Ukraine is suffering from political turmoil with the current President, Viktor Yushchenko, calling a snap parliamentary election for December. The Prime Minister, Yulia Tymoshenko, has made moves to stop the election. Ukraine's yearly trade deficit has increased by almost $7 billion since last year.
The credit line by the European Central Bank is the first time publicly that it has extended help to countries other than the 15 that make up the Eurozone.
According to Reuters, Hungary might be able to start the process of joining the euro quicker then expected. Currently, Hungary is on track to join the euro in 2011 or 2012, but if sped up, it is possible it could join as early as 2010. This might protect Hungary from further financial problems.
Sources
- Krishna Guha, Stefan Wagstyl, Thomas Escritt, and Roman Olearchyk "IMF ready to help stabilise Ukraine". Financial Times, October 16, 2008
- Krisztina Than and Gergely Szakacs "Hungary turns to ECB, cbank acts to boost markets". Reuters, October 17, 2008
- Press Release: "Statement by IMF Managing Director Strauss-Kahn on Hungary". International Monetary Fund, October 13, 2008
- Krisztina Than "Q+A-What makes Hungary vulnerable in global crisis?". Reuters, October 16, 2008
- Press Release: "Finance Minister Victor Pynzenyk met with the IMF experts". Ministry of Finance of Ukraine, October 16, 2008
- Natalya Zinets "Ukraine Finmin starts talks with IMF on crisis". Reuters, October 16, 2008
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