IMF approves standby loan for Hungary

WASHINGTON - The International Monetary Fund said Thursday it has approved a 17-month standby loan of $15.7 billion for Hungary, one of the countries in Eastern Europe hardest hit by the global financial crisis.

The IMF said its executive board acted to "avert a deepening of ongoing financial market pressures" in Hungary. The approval makes about $6.3 billion available immediately. The rest would be provided in five installments subject to quarterly reviews.

The Hungarian government has warned that a global financial crisis and slowing growth may see its economy shrink by 1 percent next year.

"We're all aware that the road ahead is challenging," Anne-Marie Gulde, IMF mission chief for Hungary, told reporters. But, she said, the hope is that combined international efforts will restore a quick return of investor confidence.

The IMF said its loan, combined with commitments from the European Union of about $8.4 billion and from the World Bank of about $1.3 billion, "will provide Hungary with the amount of reserves that is sufficient to meet its external obligations, even in extreme market circumstances."

Hungary's economy has been ravaged by investors fearful that it would be unable to make debt payments and poor market liquidity caused a temporary loss of about 40 percent last month in the value of the forint, the Hungarian currency. At the same time, shares on the Budapest Stock Exchange dropped to four-year lows.

Earlier Thursday, Hungarian authorities said they are preparing a financial aid package worth up to $3 billion to boost domestic banks' capital and help them refinance debts.

The government plans to present the package to parliament by Monday and ask for speedy approval. Hungary would get nonvoting, priority shares in the banks participating in the capital increase.

Falling world stock markets are causing many investors to withdraw money from emerging markets, sending currencies into a tailspin. Meanwhile, tight credit from strapped banks and lending markets make it difficult for those countries to obtain financing on their own.

The IMF has already agreed to lend Iceland $2.1 billion and $16.4 billion to Ukraine in the wake of the global financial crisis.

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