BUDAPEST- HUNGARY unveiled sweeping spending cuts and consumption tax increases on Sunday to put its budget back on track and revive an economy that is suffering its biggest downturn in nearly two decades.
Prime Minister Gordon Bajnai said rapid and drastic measures were needed to breathe new life into an economy that could shrink by up to 6 per cent this year.
SPENDING CUTS, TAX CHANGES
PRIME Minister Gordon Bajnai said if his measures succeed, they would provide the foundation for growth, which could exceed Europe's growth rate by 2 percentage points over the long term.
Hungary's economy will shrink by up to 6 per cent this year, faster than an earlier estimate for a 3.5 per cent decline, as the country's external environment has deteriorated sharply over the past several months, Mr Bajnai said separately on Sunday.
A political independent elected on Tuesday with a mandate to adopt austerity measures, Mr Bajnai said he would stay in the job as long as the ruling Socialists did not attempt to water down his proposals.
Hungary has been one of the countries hardest hit by the economic crisis as it relies heavily on foreign investors to finance its large budget and current account deficits. An evaporation of investor confidence sent its forint currency to an all time low in March.
'I wish to remain in this position as long as there is a stable majority behind the essential measures and the measures outlined in the programme, not one minute longer,' Mr Bajnai told Reuters in an interview.
He said his programme points the economy, now kept afloat by a US$25.1 billion (S$37.68) IMF-led rescue package, in the right direction and could help wean Hungary off international aid and avoid the need for another IMF package.
'I trust that by starting and consistently implementing this programme in the next year, Hungary will be able to rebuild confidence among foreign investors,' Mr Bajnai said. 'If there is confidence then Hungary will be able to finance itself from market,' he said.
'This is a crisis management programme that wants to get Hungary back on its feet and put it on a course to growth,' Mr Bajnai said after his newly formed cabinet approved its programme.
Mr Bajnai said he would begin negotiations immediately with the IMF and the European Union so the country could maintain its loan deals but Hungary would not aim to change its deficit target of under 3 per cent of gross domestic product, a critical element of the deals.
'We think it's very important that Hungary should show (the world) that it can achieve this, despite a bigger than expected downturn,' Mr Bajnai said. 'Our starting position is that we can and want to maintain this target.' If successful, the measures would create a primary budget surplus, or a surplus before debt services costs, of 3 to 4 per cent in 2010, Mr Bajnai said. -- REUTERS
