Hungary

Hungary's central bank raised interest rates for the second month in a row, deepening the rift between it and the country's government, which is trying to jump-start a flagging national economy, the Wall Street Journal reported today. After announcing another quarter-point increase in the National Bank of Hungary's policy rate Monday, the central bank's governor, Andras Simor, said that the step was necessary to keep inflation in check.

Hungary's government said the International Monetary Fund and European Union are ignoring the economic risks of excessive austerity measures and that Budapest can't make deeper spending cuts now, despite a punishing reaction from markets after bailout-loan talks between the two sides broke off this weekend, The Wall Street Journal reported.

Hungarian assets could come under selling pressure on Monday after the International Monetary Fund and European Union postponed the conclusion of a budgetary review in Budapest, insisting that the government must rethink its proposals, the Financial Times reported. Although Hungary is not in urgent need of IMF financing, the failure of the negotiations could unsettle investors who were uneasy about the country’s debt levels.

By the numbers, Hungary is not Greece. Its budget deficit is about one-half that of Greece. It lies outside the euro zone and so could, if pressed, lift exports by devaluing its currency, the forint. Most crucial, it is in the midst of an economic overhaul with the International Monetary Fund and can call upon an additional $2 billion if needed. But that did not prevent the politically charged comments made last week by senior Hungarian officials from sending world markets into a tailspin on Friday, The New York Times reported in an analysis.

Hungary’s economy is in a “very grave situation,” a government official said, adding to concern about Europe’s sovereign debt crisis, hurting U.S. stock futures and sending the forint to a 12-month low, BusinessWeek reported on a Bloomberg story. “It’s clear that the economy is in a very grave situation,” Peter Szijjarto, spokesman for Prime Minister Viktor Orban, said today in Budapest.

Just months after an epic banking collapse forced Iceland into the arms of the International Monetary Fund, this island nation is locked in a fierce debate over how to pay off its creditors without ceding too much of its vaunted independence, The New York Times reported. The balance Iceland strikes between bowing to the policy demands of the global financial community and satisfying the desires of its increasingly resentful population of 300,000 will be closely watched as I.M.F. programs in beaten-down economies from Latvia and Ukraine to Hungary and Romania enter a crucial phase.

The Hungarian forint may tumble as much as 13 percent against the euro, reversing a two-month rally, as the nation’s economic slump deepens, Bloomberg reported. The forint lost 3.04 percent versus the euro in the past two days, the biggest drop in emerging markets, after rising as much as 13 percent since March 6. The country is suffering as the euro area, which buys 57 percent of its goods, reduces purchases of products manufactured in Hungary such as Audi cars and Nokia mobile phones. Exports fell 18.2 percent from a year ago in March, according to government figures.

Russian banks’ bad loans will quadruple to $70 billion this year, deepening the country’s worst financial crisis since the government’s 1998 debt default, a Bloomberg survey shows. Non-performing loans will increase to 12.8 percent of the 18.4 trillion rubles ($549 billion) owed by Russian companies and individuals by the end of this year, from 3.2 percent in March, according to the mean estimate of 17 banking analysts polled by Bloomberg in the past week. HSBC Holdings Plc, Europe’s biggest bank, expects delinquencies to reach 23 percent, Europe’s highest rate after Hungary at 25 percent.

Hungary’s ruling Socialists began hunting for a new premier to tackle the economic and financial crisis after Ferenc Gyurcsany said he will quit with the nation mired in its worst recession in at least 16 years, Bloomberg reported. His successor, who will need opposition support, would be elected on April 14 by parliament, Gyurcsany, who heads a minority administration, said yesterday. Talks with rival parties are under way. The new Cabinet will have a year to repair Hungary’s finances before the next scheduled elections.

The forint hit a new low against the euro Friday, continuing a slide spurred Thursday by a Hungarian Banking Association letter instructing its members to fend off rumors of an impending freeze on customers' deposits, The Wall Street Journal reported. The country's central bank quickly sought to assure depositors their money was safe to avoid a run on the banks, but the effort failed to stabilize the currency. On Friday, the forint fell .95% against the euro. The currency has lost more than 20% against the euro since the start of the year.