UPDATE 3-Hungary govt commits to budget goal, limiting damage

* Seeks to draw line under ‘Greek-style crisis’ comment

* Recent comments on default risk exaggerated -govt official

* Says previous Socialist govts misled over state of economy

* Govt to draft action plan by end of Monday -govt official

* Aim to hit deficit goal positive, details needed -analysts

(Adds comment on expected timing of govt decisions; IMF mission
chief expected on Monday)

By Krisztina Than and Marton Dunai

BUDAPEST, June 5 (BestGrowthStock) – Hungary’s government said on
Saturday it aimed to meet this year’s budget deficit target,
seeking to draw a line under “exaggerated” talk of a possible
Greek-style debt crisis that has unnerved global markets.

State secretary Mihaly Varga, leading a review of the
country’s public finances, said Hungary’s previous socialist
governments had hidden the true extent of the fiscal shortfall,
and that additional measures would be needed to reach the 3.8
percent of GDP goal agreed with international lenders.

Analysts welcomed the government’s intention to meet the
target, which they said should calm markets somewhat on Monday,
although details were needed and any tax cuts should be offset
by spending cuts. The market consensus for this year’s deficit
is 5 percent (HUDEF1: ).

They also said the government would need to work hard to
restore credibility in its policies following a spate of
contradictory comments on fiscal issues.

Fears of a Hungarian debt crisis pushed the euro to a
four-year low on Friday after a ruling party official said the
country had only a slim chance of avoiding Greece’s fate, and
the prime minister’s spokesman said he supported this view.

“Those comments … are exaggerated, and if a colleague
makes them it is unfortunate,” Varga told a news conference.

“The situation is consolidated, and the planned deficit
(target) is attainable, but for it to be attainable the
government must take measures.”

He said some tax revenues were lower than planned in the
current budget and several spending items higher or not included
at all. [ID:nLDE65407W][ID:nLDE654074]

“We must state that the (recent) Bajnai government, similar
to the Gyurcsany government in 2006, … did not present a
credible picture of the real state of the country,” Varga said.

Asked repeatedly if it could be stated that Hungary was not
close to default, Varga said: “Any comparison with countries
with much higher CDSs (debt risk profiles) is unfortunate. These
do not give a credible picture of the state of Hungary …”

He said the government would come up with an action plan at
a meeting ending on Monday.

Varga later told MTI news agency he trusted that decisions
on the economy would be made on Monday and made public either on
Monday, or by Tuesday morning the latest.

Varga declined to give an estimate for the 2010 deficit but
said the government did aim to meet the 3.8 percent target
agreed with the IMF and the European Union, which rescued
Hungary from financial collapse in October 2008.

“Calmly, but firmly, we must prepare an action plan as soon
as possible, a series of measures that can help us attain the
deficit target,” he said. “The Hungarian economy needs
immediate, urgent measures.”


Hungary’s new centre-right government, sworn in a week ago
after winning elections in April, has so far not put forward a
clear economic plan, saying only it wants to cut taxes and
create jobs to boost growth.

Financial markets and investors had initially welcomed the
new administration, saying its strong mandate — a two-thirds
parliamentary majority — would encourage it to carry out much
needed structural reforms in the inefficient state sector.

But damage done this week by comments that seemed to show
up profound divisions within the government over how to tackle
the fiscal conundrum will take time to repair, analysts said.

The European Commission warned Hungary on Thursday against
losing the confidence of markets after talks with Prime Minister
Viktor Orban, and urged it to accelerate fiscal consolidation.

The mixed messages from the government suggested it either
wanted to backtrack on earlier promises of deep tax cuts, or set
the domestic stage for potentially painful spending cuts or
reforms, some analysts said.

Others said the government had failed to anticipate the
market impact of chasing a domestic political agenda.

“We believe that yesterday’s dramatic comments were intended
for domestic consumption and were used to build a dramatic
backdrop that would let Fidesz backtrack on a large share of its
campaign promises and broadly continue with the fiscal policies
of the previous government, as well as preparing the ground for
another round of IMF talks,” Goldman Sachs said.

Hungarian political scientist Richard Szentpeteri Nagy of
think tank Meltanyossag told Reuters: “(Ruling party Fidesz) had
to sketch out some economic nightmare scenarios.

“The motivation behind this was domestic, and not the
careful, well thought-out public comments that would be correct
in the international world.”


The IMF’s mission chief is expected in Hungary for informal
talks next week. Varga said it would not be an official review.
The last regular review was in February.

Local news website portfolio.hu said the IMF mission chief
would arrive on Monday.

Hungary has not drawn on any IMF funds this year so far, but
the new government has said it wanted to seek a new deal with
lenders because the current financing deal expires by October.

Analysts said programme details were needed and tax cuts may
be delayed.

“The 3.8 percent target is achievable only if the government
… cuts spending or raises revenues. I don’t think that tax
cuts are possible in this situation,” Zoltan Torok at Raiffeisen

Hungary had a deficit of 4 percent in 2009 at the price of
deep spending cuts that exacerbated a recession but rebuilt
market confidence.

The finance minister of the previous government said there
were risks attached to the 2010 budget but the target could be
met with tight fiscal policy.

Stock Market

(Reporting by Krisztina Than and Marton Dunai; editing by John
Stonestreet and Alison Williams)

UPDATE 3-Hungary govt commits to budget goal, limiting damage