Hungary was on a fast track to a financial crisis as Fitch became the third of the major rating agencies to downgrading the government’s debt to ‘junk’ status — meaning it is highly unlikely to repay money it has been lent.
Investors doubt the government’s willingness to change its controversial economic policies which it has to do to get necessary loan guarantees from the International Monetary Fund and the EU.
Tamas Fellegi, the minister in charge of negotiations with the IMF, said: “We’d like to have an agreement fast with the IMF and the EU. We’ve made it clear we’re ready to negotiate without preconditions, and we’re ready to discuss everything at the negotiating table. This doesn’t mean that we would accept anything at any time.”
Worries about a financial crisis in Hungary pushed the currency, the forint, to an all-time low of 324 to the euro on Thursday before it recovered slightly on Friday when one euro would buy 316 forints.
Under mounting pressure from financial markets, the government has backtracked from its initial insistence on sticking to legislation which the EU and IMF say takes away the independence of Hungary’s central bank.
It remains to be seen how far Budapest will go to get back into the international lenders’ good books.