When the tide goes out

29 September 2011 By Ian Campbell

Money is flowing out of emerging economies. Countries that had complained about currency appreciation have had to prop up forex rates. Turkey and South Korea are vulnerable to hot money retreat. Poland and Hungary are caught in currency traps.

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Austrian and Italian banks are urging the European Commission to investigate a law introduced by the Hungarian government which obliges them to suffer losses on foreign currency loans made in Hungary. The law is “an interference in private contracts, which alters property rights to a certain extent,” Josef Christl, a former director of Austria’s central bank, said. Under the law Hungarian borrowers will be able to repay mortgages at a fixed exchange rate of 180 forint per Swiss franc and 250 forint per euro, provided they took out the loans at lower rates. The forint traded at 290 per euro and 237 forints per Swiss franc on Sept. 29.
The Polish government has approved an austere budget for 2012 in which it will aim to reduce its deficit from an estimated 5.6 percent of GDP this year to 2.9 percent of GDP. Public debt will amount to 53.8 percent of GDP this year, the government said, compared with an estimate earlier of 52.7 percent of GDP. The target for 2012 is a debt level of 53 percent of GDP.
Jacek Rostowski, the finance minister, said there was no risk of breaching the 55 percent of GDP level that would constitutionally oblige the government to balance the budget.

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