Page last updated at 13:34 GMT, Thursday, 30 October 2008

Hungary split over crisis moves

A massive $25bn (15.6bn) international rescue package will shore up Hungary's stricken finances but the economic crisis is hurting ordinary people, the BBC's Nick Thorpe reports from Budapest.

Prime Minister Ferenc Gyurcsany
Prime Minister Gyurcsany insists the IMF bail-out was necessary

The promised loans - from the IMF, the EU and World Bank - appear to have achieved their initial aim, staving off fears of state bankruptcy and restoring investors' interest in Hungarian state bonds.

The country depends on the bonds to service its $85bn debt - a situation which, along with a big budget deficit and slow growth, made Hungary especially vulnerable to the global market turmoil.

The Hungarian forint and Budapest stock exchange staged dramatic recoveries after the loans were announced late on Tuesday.

It is the first EU country to get such a rescue package. But the cost to the public will be high.

Public anger

"Many blame the government for the crisis - for leading Hungary into such a mess in the first place," said Laszlo Toth, a supermarket manager in Balatonakali, western Hungary.

"I don't let the government off the hook either. But the problems did not begin yesterday.

Last week sales fell 80%.... people are afraid

Budapest shop owner

"What we need now is a new way of thinking. We need to put aside our differences, to find a way out of the crisis together," he added.

Shopping baskets in the FEK ABC supermarket he manages are already showing the effects of the crisis. Everyday goods like bread, milk and yoghurt are still selling as usual. But customers are shying away from more expensive goods, like perfumes and quality chocolates.

In the Hungarian capital, it is a similar story.

Tamas Giebiszer, owner of two designer clothes shops in Budapest, likened the crisis to the 11 September 2001 terror attacks in the US.

"The effect has been like 9/11. Last week, sales fell 80% in one of our stores from one day to the next. People are afraid," he said.

Job cuts

The Socialist Prime Minister, Ferenc Gyurcsany, says the economy is likely to shrink 1% next year, instead of the 3% growth his ministers were predicting only two weeks ago.

A Budapest broker
The forint's swings have made more Hungarians keen to join the eurozone

And as the economy contracts, lay-offs are inevitable.

Each day the list of job losses grows longer.

Examples from western Hungary include the Opel car factory in Szentgottard on the border with Austria.

Smaller companies which supply the plant are also cutting staff, as is a fertiliser company at Petfurdo.

It is a similar story at the Danish-owned Rockwool company at Goganfa, which makes insulating materials for houses.

The construction industry is already showing signs of crisis, with work suspended on new office developments in Budapest.

The labour minister has forecast 40,000 job losses.

Opposition anger

The main opposition conservative party, Fidesz, speaks of two million victims - out of a population of 10 million.

Tax cuts would create the possibility of investments, and would increase the number of jobs
Mihaly Varga
Shadow finance minister

The opposition also challenges the necessity of turning to the International Monetary Fund in the first place.

The European Central Bank had already offered Hungary a credit line of 5bn euros (4bn; $6.53bn) and some analysts believe that should have been enough.

The country has strong foreign currency reserves.

Its banks are 80% foreign-owned, making the country much more stable than Iceland, another European victim of the global financial meltdown.

The government has stressed from the start that Hungary is far from bankruptcy.

In response to doubts about the need for IMF intervention, the prime minister told deputies that the EU only had 10bn euros set aside for such emergencies, while the IMF had access to 220bn euros.

Fidesz also accused the government of not making public details of the IMF package, and disguising their own policies as IMF demands. These already include cutting bonuses usually paid to pensioners and public sector employees - the so-called 13th month wage. Until now, any change to that has been taboo in Hungarian politics.

Fidesz continues to demand sweeping tax cuts as a central component of measures to drag Hungary out of the crisis.

"Tax cuts would create the possibility of investments, and would increase the number of jobs which the country obviously needs," said Mihaly Varga, shadow finance minister.

"The other precondition would be support for small and medium-sized enterprises," he said. Small firms make up 65% of Hungary's GDP.

Political test

In response Ildiko Lendvai, leader of the parliamentary group of the governing Socialists, said the opposition's tax proposals resembled a terrorist attack on Hungary's security.

The big domestic political test of the IMF-led package will come when the government presents its much-revised 2009 budget to parliament.

Since April, the Socialists have run a minority government, after their long-term allies, the liberal Free Democrats, walked out of the coalition.

If the Free Democrats support the budget in parliament, it will pass comfortably.

In Washington, the executive board of the IMF will review details of the package next week, as will EU foreign ministers at their summit on 7 November.

As Hungarians brace themselves for the looming economic recession one consolation has been the pleasant weather.

The vines on the gentle slopes above Laszlo Toth's supermarket were bathed in warm October sunlight and the thermometer reached 24C.

People worked in shirt sleeves to gather the last grapes of the harvest, among leaves turning gold and orange.

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