Since coming to power in April 2010, Viktor Orban’s Fidesz government has given Hungarian bond investors a rough ride with a succession of unorthodox and populist measures, from introducing crisis taxes on banks and other foreign-dominated sectors to cutting off ties with the IMF, nationalizing private pension funds, and forcing banks to accept heavy write-downs on foreign-currency-denominated mortgage debt.
Inevitably, spreads on Hungarian debt have soared, ratings have sunk – all three ratings agencies removed Hungary’s investment-grade status between November and January – and the forint has plummeted, exacerbating the country’s already acute difficulties in dealing with an external debt level of 140% of GDP.
The announcement in November that Hungary would swallow its pride and go back to the IMF for a standby agreement brought some comfort, but that was negated by the protracted delay in getting to the negotiating table because of the government’s failure to address European Commission concerns...
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