## Transcript of a Press Conference on the Executive Board Approval of a Stand-by Arrangement for Hungary, With Anne-Marie Gulde, Senior Advisor in the IMF's European Department and Mission Chief for Hungary, James Morsink, Division Chief in the European Department

_IMF News, November 21, 2008_

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## Bibliographic details
- Published: November 21, 2008

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### Background and program overview
- IMF Executive Board approved a Stand-By Arrangement for Hungary in the amount of 12.3 billion euros.
- Hungary was among the first emerging-market countries affected by the global financial crisis.
- Program focus: restore financial-market stability and economic growth through fiscal and banking sector measures.
- Complementary financing: major contributions to the overall financing packages are committed by the European Union and the World Bank; discussions with the EIB and the EBRD are ongoing regarding potential increased commitments.

### Fiscal measures and social considerations
- Objective: reduce the size of the public sector through lower expenditures to ease short-term financing pressures and lower high levels of debt.
- Social protection: authorities mindful of social impact; pension measures exclude low-income pensioners from cuts of benefits.
- Specific measures:
  - Wage freeze for public-sector employees.
  - Suspension of the 13-month bonus for public-sector employees in 2009 (introduced in 2003), resulting in a nominal wage cut for public-sector workers.
  - Elimination of the 13-month pension for higher-income pensioners; the 13-month pension is preserved for those with pensions up to 80,000 forints.
  - Across-the-board expenditure restraint.
- Impact on public expenditure: combination of measures yields a reduction in expenditure as a share of GDP of about 2 percentage points between this year and next year.
- Fiscal targets and debt trajectory:
  - Size of public sector: about 45 to 50 percent of GDP.
  - Public debt: about two-thirds of GDP, about 66 percent of GDP.
  - Government target: fiscal deficit in 2009 of about 2-1/2 percent of GDP.
  - This is consistent with a primary surplus of about 2 percent of GDP to help reduce public debt over time.

### Banking sector measures
- Second pillar: decisive measures in the banking area, including:
  - Preemptive recapitalization of eligible banks.
  - Strengthening of the supervisory and crisis-management abilities of Hungarian supervisory agencies.
- Intended outcomes:
  - Ensure banks' capital in Hungary remains high.
  - Ensure supervisory authorities are prepared to recognize risks and take necessary preemptive measures.
- Performance criteria include submission of the bank support package to parliament in the next few days and strengthening supervisory powers.

### Conditionality and program ownership
- Conditionality focused on short-run stabilization: government deficit and banking system are primary areas of performance criteria.
- Consultation clause on inflation projection:
  - Inflation projected to come down from its current level of about 5-3/4 percent to about 4 percent by the end of 2009, and eventually to the inflation target of 3 percent.
- Emphasis on strong ownership: program developed by the government, the central bank, and the authorities; this underpins confidence in implementation.

### Market reaction and stabilization indicators
- Exchange rate: encouraging signs of stabilizing; flexible, market-determined exchange rate maintained under the program (no change to regime or band limits expected).
- Banking sector market signals: partial recovery in the stock price of a regionally active bank cited as a positive sign; full stabilization of that bank would be a further indicator of progress.
- Treasury bill market: earlier vulnerabilities included undersubscribed auctions and very high yields; authorities reduced supply. Return to normal conditions and ability to rollover maturing debt would signal restored confidence.
- Timeline scenario:
  - Reaction to initial program announcement was strong.
  - Barring major global or regional banking home-country problems, a good-case scenario for visible stabilization could occur in weeks.

### Key statistics and exact figures
- Stand-By Arrangement amount: 12.3 billion euros.
- Public sector size: about 45 to 50 percent of GDP.
- Public debt: about two-thirds of GDP, about 66 percent of GDP.
- Fiscal deficit target for 2009: about 2-1/2 percent of GDP.
- Primary surplus target: about 2 percent of GDP.
- Reduction in expenditure as share of GDP: about 2 percentage points between this year and next year.
- Inflation path: from about 5-3/4 percent to about 4 percent by the end of 2009, ultimately to 3 percent.
- Pension preservation threshold: up to 80,000 forints.

*Transcript: Washington, D.C., Thursday, November 6, 2008; transcript posted November 21, 2008 — speakers Anne-Marie Gulde and James Morsink.*

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## References

- [Hungary and the IMF](http://www.imf.org/external/country/HUN/index.htm)
- [Conditionality](https://www.imf.org/en/about/factsheets/sheets/2023/imf-conditionality)
- [Transcripts](https://www.imf.org/en/news/searchnews)
- [Watch video summary](https://www.imf.org/external/mmedia/view.asp?eventID=1307)
- [Press Release: IMF Executive Board Approves €12.3 Billion Stand-By Arrangement for Hungary](https://www.imf.org/external/np/sec/pr/2008/pr08275.htm)
- [PRESS CENTER](http://presscenter.imf.org/)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/54/tr081106b_