Bloomberg News

Forint Weakens on Speculation Greece Risks Running Out of Time

February 07, 2012

Feb. 6 (Bloomberg) -- The forint weakened on speculation Greece may run out of time to reach a deal with creditors, eroding investor demand for riskier emerging-market assets as Hungary strives to obtain a bailout of its own.

The currency of Hungary, the European Union’s most indebted eastern member, depreciated as much as 1 percent and traded 0.4 percent weaker at 291.7 per euro by 5 p.m. in Budapest. The slump pared the forint’s advance to 8 percent so far this year.

European leaders stepped up pressure on Greek politicians to meet the conditions of a 130 billion-euro ($171 billion) bailout, saying time was running out. Hungary is struggling to restart talks with the EU and the International Monetary Fund on a bailout of its own after a dispute over laws which threatened the independence of the central bank.

“A Greek agreement or positive developments on the IMF deal may push euro-forint below 290,” Peter Karsai, a Budapest- based currency trader at Commerzbank AG, and colleagues wrote in an e-mail today. “In the opposite case, exchange rates above the 295 level may be ahead.”

Malev Zrt., the state-owned Hungarian airline, ceased flying at the end of last week after the government withdrew financing. The demise of Malev, which has debts of 60 billion forint ($270 million), may force the state to pay about 1.5 billion euros in a one-time obligation to the airport’s operator, according to a paper published by the Development Ministry in December, which cited a privatization contract.

Malev Risk

The obligation arising from Malev’s bankruptcy is a fiscal risk which “provides a further incentive for the government to push ahead with an IMF/EU program,” Simon Quijano-Evans, a London-based economist at ING Groep NV, wrote in a research report today. “We recommend moving onto the sideline in Hungarian assets.”

Hungary will yield to some EU demands in infringement cases concerning the central bank and on two other issues the EU criticized, Magyar Nemzet reported today, citing unidentified people with knowledge of the issue.

“There is still one market where we remain comfortable expressing a bearish view,” Guillaume Salomon, an emerging- market strategist at Societe Generale SA in London, wrote in an e-mailed report today. “That market is Hungary,” Salomon wrote, adding that the IMF deal remained a “long shot” and that Malev’s collapse raised concerns about government finances.

--Editors: Ash Kumar, Peter Branton

To contact the reporter on this story: Andras Gergely in Budapest at agergely@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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