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Pressure tactics to force Hungary to sign a loan agreement with IMF

Wednesday, February 22, 2012


MKB Bank analyst, Zsolt Kondrát believes that the probability of freezing the cohesion funds to Hungary is low -- the threat probably won't be implemented. It was issued to force Hungary to sign a loan agreement with IMF.

According to the MKB Bank analyst, freezing funds wouldn't have too much direct impact on Hungarian economy. He explained that these sorts of fund applications take a long time to be assessed before any amount of money is paid.

The EU wants to freeze the funds starting in January 2013, which will have a very delayed effect. This is not like suddenly freezing a large amount of money to the country said the economist.

The short-term economic impact will be clearly negative – there will be less investment; but in the medium term may not be enough to harm economic prospects, because not only Hungary, but other countries too are doubting the effectiveness of these EU-funded projects.

The analyst said the negative impact of freezing funds wouldn't have financial impact but the message behind it that would hurt – it would indicate that there is no agreement with the IMF. In a situation like this, exchange rate depreciation, increase yields and lower economic growth is waiting for Hungary.

On Wednesday, the European Commission proposed the suspension of 495 million cohesion funds to Hungary effective in January 2013, because the country has allegedly failed to fulfill its obligation of deficit reduction. The panel's proposal still should be approved by the finance ministers of the EU member states.

(MTI – hungarianambiance.com)

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