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<DIV class=clearfix><FONT size=2 face=Arial>Figyelmetekbe,
üdvözletteL:</FONT></DIV>
<DIV class=clearfix><A
href="http://www.bloomberg.com/news/2012-10-30/hungary-gets-first-prize-for-creative-deficit-reduction.html"><FONT
size=2
face=Arial>http://www.bloomberg.com/news/2012-10-30/hungary-gets-first-prize-for-creative-deficit-reduction.html</FONT></A></DIV>
<DIV>
<DIV class=clearfix>
<H1><FONT size=4>Hungary Gets First Prize for Creative Deficit
Reduction</FONT></H1></DIV>
<DIV class=bview_story_meta><CITE class=byline>By Marc Champion </CITE><CITE
class="byline story_time"><SPAN style="DISPLAY: inline" class=datestamp
epoch="1351639293000" bgdatestamp="mmm d, yyyy h:MM TT Z" bglocalize="true">Oct
31, 2012 12:21 AM GMT+0100</SPAN> </CITE></DIV>
<DIV id=story_content class=clearfix>
<DIV class="custom_fb_image icon"><A class=q
href="http://www.bloomberg.com/news/2012-10-30/hungary-gets-first-prize-for-creative-deficit-reduction.html"
data-type="Story" data-id="MCQBJX6KLVRO01"></A> </DIV>
<DIV id=story_display>
<P>You have to hand it to <A href="http://topics.bloomberg.com/hungary/"
density="full">Hungary</A>'s ruling Fidesz party. They are way out front when it
comes to finding ingenious ways to plug the country's gaping deficit -- while
not doing what the <A
href="http://topics.bloomberg.com/international-monetary-fund/"
density="sparse">International Monetary Fund</A> and common sense say they
should.</P>
<P>The <A
href="http://www.bloomberg.com/news/2012-10-30/hungary-retail-debt-sale-plan-threatens-to-drain-bank-deposits.html"
density="full">latest proposals</A> include one to borrow at least 60 billion
forint ($272 million) from Hungarian citizens by selling them euro-denominated
bonds. Another would grant residency to foreigners willing to buy 250,000 euros
of Hungarian <A href="http://topics.bloomberg.com/government-bonds/"
density="full">government bonds</A>.</P>
<P>True, deals that trade visas for investment aren't unique: The U.S.
fast-tracks green cards for foreign job creators, and a new Senate proposal
calls for foreign investors in residential property to get visas to stay in the
U.S. But trading residence for loans, especially if the deal provides access to
another 25 countries, would be new.</P>
<P>The Eurobond issue would prove problematic and costly. The bonds will pay an
interest rate of euro-area inflation plus 2.5 percentage points, or today about
5.2 percent. That's more than what Hungary would pay to borrow far more
significant sums from the IMF. But because Prime Minister <A
href="http://topics.bloomberg.com/viktor-orban/" density="sparse">Viktor
Orban</A> and his government don't want to sign up to IMF conditions, Hungary
has to pay more.</P>
<P>The other problem with the plan is that it's likely to exacerbate Hungary's
credit drought. The government introduced some radical economic policies on
taking power, including a flat income tax that promptly reduced tax revenues and
grew the <A href="http://topics.bloomberg.com/budget-deficit/"
density="full">budget deficit</A>, while failing to stimulate the economy. The
government responded with special measures, such as an extra tax on the
country's mainly foreign-owned banks. The banks responded by reining in
corporate lending, further cutting the country's growth prospects.</P>
<P>Selling Eurobonds would exacerbate that problem by sucking foreign currency
deposits out of the banks and giving them a lower capital base on which to lend.
Still, it's certainly a creative response to the debt crisis.</P>
<P>(Marc Champion is a member of Bloomberg View's editorial board. <A
href="https://twitter.com/MarcChampion1" density="full">Follow</A> him on
Twitter.)</P></DIV></DIV></DIV></BODY></HTML>