Transcript of a Conference Call on Hungary
February 4, 2011With IMF Mission Chief Christoph Rosenberg
Thursday, February 3, 2011
MS. NARDIN: Welcome to the conference call on the release of the IMF Staff Report on the 2010 Article IV Consultation with Hungary. The report is available on our Online Media Briefing Center for journalists, and both the Staff Report and the content of this conference call are under embargo for another half-hour. I will ask the IMF mission chief for Hungary. Mr. Christoph Rosenberg, to introduce the call, and then we will open it up or questions.
MR. ROSENBERG: Thank you, Simonetta, and thank you everybody for calling in. I wanted to report to you about the consultation that we have had with the Hungarian authorities. It stretched a bit longer than usual. We had, as you know, a mission in October and subsequently some discussions with the authorities. The Board meeting took place this last Monday on January 31. This, as you know, was the opportunity for the entire IMF membership to review the economic prospects and policies of Hungary. The summing up of that Board meeting is part of the documents that are available to you. It is the Executive Board assessment and it is a good indication of what the directors from around the world thought about the policies in Hungary.
Let me highlight three issues that I think feature prominently in our discussions with the authorities and, of course, in the report and in the Board discussion last Monday. One is fiscal sustainability. The authorities have embarked on a very ambitious policy to promote growth and employment. This direction of policies is generally assessed to be a very positive one, but the directors were also very aware of the constraints that Hungary's very own vulnerabilities impose. I am specifically referring to its high level of public and external debt. Against that background, our assessment is that the policies are also very risky. At the present state, based on the policies announced until now, fiscal sustainability cannot be ensured. In addition, some of the policies that have been taken, specifically sectoral taxes, may also be distortionary and hence undermine growth.
Against this background, the intention of the authorities to identify further measures in February is very, very important. We have not had a chance to look at these measures, but we will obviously do analyze them very closely when we are given the opportunity to do so. Timing, quality, and scope of these measures are crucial to fill this gap and to bring Hungary's fiscal policies on a sustainable path.
Why is this so important? It is of course important in itself, but it is particularly important against the background of Hungary's high dependence on investor confidence. That investor confidence has suffered lately as one can see from the borrowing spreads as they have developed since last summer.
A second area that was identified as important for Hungary is foreign currency lending, specifically the stock of foreign-currency debt. As you know, a lot of it is mortgages in Swiss francs. This issue will be with Hungary for a long time. There is no quick-fix solution to this. Some of the ideas that have been floated to encourage private-sector voluntary debt restructuring go in the right direction but the devil will be in the details. I should also say that the high level of foreign-currency debt imposes constraints on monetary policy, which are recognized by the Central Bank.
The third area that was identified by the Executive Board is economic governance. I should say, and you will see it from the Board's assessment in the summing up, that there was quite some concern about some of the steps taken in recent months, specifically changes to the rights of the Constitutional Court, to the way members of the Monetary Policy Council are appointed, to the way the Financial Stability Council operates and to the changes to the Fiscal Council which had been set up only recently to provide a body to independently asses the government's fiscal policies. Against this background, the Board of the IMF recommended a very close policy dialogue with the authorities. We are very much ready to pursue that. Formally, this is called Post-Program Monitoring, but what is means is that we will continue to be open for exchanging ideas on all levels with the government. With that, I am happy to answer any questions that you may have on the report.
QUESTION: Thank you. I have one question on the statistics. I read both the Executive Board's statement as well as the Staff report and I noticed I am not sure if it is a discrepancy or not, in the IMF's Staff Report on page nine the projected government surplus 5.7 percent, and in the Executive Board's shorter piece, it is 5.6 percent. I wondered which one is the correct one.
MR. ROSENBERG: I think it must be the 5.7. There may be a rounding or a clerical error, but I think the general message from this is not determined by the one decimal difference here. Clearly, the government will run a surplus this year on ESA accounting standards because the transfer of these potential assets counts as one-time revenue. I should also say that the report was completed at the end of December based on the information available at that very point in time and we only now since Monday know exactly how many people have opted to say in the second pillar. We will have to update our calculations of what that translates to in terms of assets being transferred. Therefore, I think we should not be glued to this one decimal.
QUESTION: No, I am certainly not glued to it. My question was which one we should use in the article we are writing, we will go with 5.7 percent according to what you said.
MR. ROSENBERG: We can get back to you, but my first inclination would be 5.7 because that is probably also consistent with the one in the other tables.
MS. NARDIN: If there were no more questions, this would conclude the conference call on the Staff Report on Hungary. Thank you Christoph and thank you all participating.