Hungary’s PM ready to quit

Hungary has been thrown into a new bout of political uncertainty following the the prime minister’s weekend announcement that he will quit.

Ferenc Gyurcsany said he was leaving because disputes about his personal political role was impeding progess on economic reforms vital to the crisis-hit country’s recovery.

His planned departure is likely to be followed by around two weeks of political manouvering as a successor - possibly a non-party technocrat - is found to lead a new govt.

With Hungary facing difficulties managing an IMF rescue programme as it slides deep into recession, investors will be watching closely whether Mr Gyurcsany’s successor can restore political and economic stability.

Mr Gyurcsany is set be eastern Europe’s second political victim of the economic crisis following the resignation last month of Ivars Godmanis, the prime minister of Latvia, which is also receiving IMF aid.

There are also serious concerns about stability in Ukraine, the third state with an IMF rescue.

Mr Gyurcsany, who has led a minority government since the collapse of a Socialist-Liberal coalition a year ago, said parties should find a prime minister who would enjoy broad party support to carry out reforms.

The new prime minister will have at most a year before elections due next spring. Opposition parties say they will not accept a Socialist politician in the role, meaning Mr Gyurcsany’s successor will have to rely on ad hoc dealmaking to pass legislation during a precarious 13-month term in office.

Gabor Ambrus, an economist at 4cast, the London consultancy, said markets were likely to adopt a wait-and-see stance when they open on Monday, but warned that any successor would need a credible economic programme to stop investor flight. He said the Hungarian forint, which has swung between 280 and 320 forints to the euro over the past month, was likely to remain stable while a successor was sought. ”If they choose somebody with a credible programme [...] it doesn’t mean the forint will immediately rise to 280, but at least it might not reach 350ft to the euro.”

Some 85 per cent of consumer loans in Hungary last year were denominated in foreign currencies, which means consumers, who already face declining real incomes, are heavily exposed to falls in the local currency, while banks could see a sharp rise in loan defaults.

Of the candidates who have emerged to succeed Mr Gyurcsany, the biggest hitter is Lajos Bokros, the former finance minister who in the mid-1990s earned plaudits by making deep cuts to state social spending, laying the ground for strong growth during the late 1990s and early 2000s. Though he became the least popular politician in Hungarian history in the aftermath of his ”Bokros package”, the economics professor’s stock has since risen to the extent that opinion polls show cautious enthusiasm for a man with a proven track record.

Fidesz, the largest opposition party, has called for early elections, which are a near certainty if the other parties fail to agree on a successor