The Hungarian banking association (MBSZ) said today that it considers any discussion of local government debt restructuring "useless" and that it would be largely impossible to undertake.
Yet a few days ago the Wall Street Journal reported that Hungary is the country most at risk in Central Europe as a large part of its public debt - equal to 80% of GDP - is denominated in Swiss francs. With the appreciation of the franc in the last two years, private debt has increased considerably, but above all that of local governments, of which about 20% is denominated in foreign currency (according to data from the Hungarian National Bank - Mnb).
The secretariat of the Levente Kovács banking association said that local government debt stood at 30 billion forints (about 1,017 million euros) on June 3,7, in line with the European average, about 4% of GDP . Furthermore, Kovács stressed that the percentage of defaulted loans in the portfolios of municipal banks is only 0,5%. So there is nothing to fear.
Last week, however, some municipalities asked for government intervention to mediate with the banks and obtain a delay in principal payments on loans denominated in foreign currency. A large part of local government debt is denominated in Swiss francs and yesterday the franc hit a record high at 273.43 guilders. Recently some local governments, with the cooperation of the banks, have had to restructure their debt to keep their financial position intact and many are thinking of freezing the expenditure and investments already planned.
János Lázár, head of the ruling conservative parliamentary group, ruled out the possibility of an "unconditional" consolidation of the debt of local governments. The lawmaker advised municipalities to seek individual solutions and negotiate new payment deadlines with banks.
It should be remembered that in 2008 the International Monetary Fund, the European Union and the European Central Bank granted the country a loan of 20 billion dollars in exchange for austerity measures which would allow Hungary to achieve certain objectives including a growth 2,5% in 2011 and a deficit of 3% in 2012.
Source: Budapest Business Journal
