[R-G] Credit Lifeline Could Spur Budapest Reforms + Belarus to Liberalise for IMF Loan

[Yoshie Furuhashi]

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Credit lifeline could spur Budapest reforms
By Thomas Escritt in London
Published: October 29 2008 18:24 | Last updated: October 29 2008 18:24

The strings attached to Hungary's rescue package may just give the
country's leaders the excuse they need to push through structural
reforms.

When Hungarians voted in a referendum on spending cuts last March,
their response was a resounding "no" and the politicians listened.

Since the 1960s, Hungarian governments have secured social peace by
borrowing abroad to indulge consumer appetites at home, a tradition
that survived the country's transition to free market democracy in
1989. Painful reforms have been a recipe for political suicide.

But the news of a $25.1bn credit line to the country, which has been
suffering from investor flight due to fears over its ability to
finance its foreign debts, may bolster the minority socialist
government's resolve.

In exchange for the package, led by the International Monetary Fund,
Hungary has promised Ft300bn ($1.5bn, €1.2bn, £920m) in spending cuts.
This is on top of cuts worth Ft80bn, which Hungary pledged following
the European Central Bank's grant of a €5bn credit line two weeks ago.

The IMF said it had been impressed by Hungary's comprehensive policy
package, designed to restore investor confidence and alleviate the
stress experienced in recent weeks in the Hungarian financial markets.

The package's fiscal measures "[justified] the exceptional level of
access to Fund resources – equivalent to around 1,020 per cent of
Hungary's quota in the IMF – and deserve the support of the
international community," said Dominique Strauss-Kahn, the managing
director of the IMF.

The IMF and EU interventions have helped Ferenc Gyurcsany, the
reform-minded prime minister, to enforce discipline among his
fractious backbenchers, convincing them to support the curtailing of
totemic "13th month" payments to pensioners and public sector
employees.

"At least Mr Gyurcsany has now persuaded his party to sacrifice this
particular sacred cow," said Krisztian Szabados, a partner at
Political Capital, a public affairs consultancy.

David Daroczi, spokesman for Mr Gyurcsany, said the cut was also a
signal to foreign investors: "We did not need to [cut the 13th month
payments] to get the IMF's help. We did it to send a clear message to
investors that the government is ready to make cuts. It has symbolic
value."

The government forecast on Tuesday that the economy could contract by
up to 1 per cent next year.

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Belarus to liberalise for IMF loan
By Jan Cienski in Minsk
Published: October 29 2008 09:26 | Last updated: October 29 2008 18:53

Belarus is promising to reform its economy and sell off some state
assets as it holds talks with the International Monetary Fund on a
possible $2bn loan as a "security cushion" in case of further
turbulence from the global financial crisis.

Minsk has used about 10 per cent of its foreign currency reserves,
which now stand at about $4.9bn, over the last month as it tried to
support the Belarusian rouble.

Belarus, which has a relatively underdeveloped financial sector, was
not affected by the initial shock of the crisis, but it has been hit
by turmoil in Russia, its main trading partner, and neighbouring
Ukraine.

"In the first phase Belarus was only minimally affected. But in the
second phase, with terms of trade becoming worse, we anticipate
certain problems will confront our exporters," Vasily Matyushevsky,
the deputy chairman of the central bank, told reporters on Wednesday.

The IMF has already agreed to loan Hungary $25.1bn and Ukraine
$16.5bn. An IMF delegation arrived in Minsk on Sunday and is holding
talks with the Belarusian government.

"It is needed to safeguard against any shocks or stresses," said
Andrei Kobyakov, the deputy prime minister, adding that if the
economic situation improved Belarus might end up not needing the loan.

Belarus, one of Europe's last authoritarian states, has long been one
of Russia's closest allies but in the last year has been cautiously
opening itself to the west. In September it increased the permitted
foreign stake in local banks to rise from 25 to 50 per cent. The
government is also planning to sell off four state owned banks as well
as other state owned enterprises.

"We are taking steps to improve the business climate of our country,
to ensure a continued inflow of foreign direct investment," said Mr
Matyushevsky.

Belarus is also in the final stages of negotiating a $2bn loan from
Russia, which supplies Belarus with most of its oil and gas. Mr
Kobyakov denied that the terms of the loan were tied to Belarusian
recognition of Abkhazia and South Ossetia, two breakaway regions of
Georgia that Russia says are independent states.

"The Russian loan is not linked to the global economic crisis,
although in today's situation it is coming just in time," he said.

The Belarusian economy grew by 8.2 per cent last year and the
government expects growth this year to be at least 10 per cent.