Hungary pledges reform after IMF demands

Hungary’s government said it would plough on with deficit-slashing reforms demanded by the IMF and EU, and aimed to become Central Europe’s most stable country “as quickly as possible”.

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This was after both bodies said after a mission to Budapest this month on financial aid that the country had to do more to reduce its public deficit.

“The Hungarian government will continue the policy of structural reform in the areas qualified most important by our partners such as the fiscal system, public health and public transport,” Economy Minister Gyorgy Matolcsy said.

“The goal of the government is that Hungary becomes as quickly as possible one of the most competitive and stable countries in Central Europe,” he said in a statement.

Negotiations with the European Union and International Monetary Fund would continue, he said.

The IMF head of mission in Hungary, Christoph Rosenberg, said Saturday the country had to make “difficult decisions” to cut its public deficit, in particular in slashing spending and restructuring public enterprises.

The targets was to reduce the deficit to 3.8 percent of gross domestic product in 2010 and less than three percent in 2011 remain appropriate “but supplementary measures are going to have to be taken to reach them,” he said.

Rosenberg said in a statement that measures to increase revenue, such as a planned tax on banks and the financial sector, had to be complemented by “lasting” cuts in spending.

It has been estimated that the new tax could raise up to 650 million euros (815 million dollars) in additional annual revenues both this year and next year.

But banks have criticised the move and the EU executive body said Saturday the levy would help in the short term but could also have “a significantly negative impact on the country’s investment climate and economic growth.”

The European Commission also said the corrective measures considered by the government so far were “largely of a temporary nature” and “fall somewhat short” of what is required.

“Hence, the government has to make increased efforts to bring the deficit below 3.0 percent of GDP, on a sustainable basis, in 2011,” it said.

Hungary narrowly escaped bankruptcy in late 2008, thanks to a 20-billion-euro financial lifeline from the IMF and the EU in a deal that expires in October.