The lending conditions for Hungary’s EUR 20bn financial support package from the International Monetary Fund (IMF), European Union (EU) and World Bank have been modified as part of changes by the IMF to all of its lending agreements with countries in light of the financial crisis, the Finance Ministry said in a statement on Friday.
The ministry issued the statement after daily Magyar Nemzet reported the IMF had unilaterally extended the run of Hungary’s loan.
“The IMF has announced modernised, more flexible lending conditions that are generally valid for all member countries that have taken out loans and relate to all contracts already signed within the framework of its response to the financial crisis,” the ministry said.
Under the changes, decided on by the IMF board in March, the run of Hungary’s loan was automatically extended by one year to five years with a three-year, three-month grace period.
Changes were also made to the stand-by fee and the interest margin system, although member countries may decide by August 1 whether they want to adopt the new interest margin system or keep the old structure.
The ministry said the changes to the conditions for the loan were favourable, adding it would decide in the coming days whether to adopt the new interest margin system or keep the old one.
Interest rates on SDR loans are calculated weekly based on a basket of dollar, euro, yen and pound three-month treasury bill yields. The interest margin on the IMF loans depend on the borrower’s quota, which, in Hungary’s case, is SDR 1.038bn. Countries pay one percennage point on loans up to 200pc of the quota and two percentage points on any amount over 300pc of the quota. The base rate for IMF loans is under 3pc, compared to 3.25pc for EU loans. (The EU is issuing three- and five-year bonds at 30bp over mid-swaps and using the proceeds for Hungary’s loan, which it is providing at the same rate.)
The new interest margin system eliminates the one percentage point margin on amounts over 200pc of the quota, but would keep the two percentage point margin for amounts over 300pc of the quota. Under a new condition, if the balance of the loan after three years is still over 300pc of the quota, the interest margin would be lowered to one percentage point.
The IMF currently sets its stand-by fees at 0.25pc per year up to 100pc of the country quota and 0.1pc on amounts over that. Under the new system, the fee would be 0.15pc up to 200pc of the quota and 0.3pc on amounts over that.
The IMF approved a SDR 10.5bn, or EUR 12.4bn, stand-by arrangement for Hungary in November, after the country’s bond market locked up. The stand-by arrangement was part of a combined EUR 20bn financial support package to which the EU and the World Bank also contributed.
Hungary called down a SDR 4.21bn tranche of the IMF loan in 2008. The country was to pay — based on its quota — 2.71pc on SDR 2.076bn of the tranche, 3.71pc on SDR 1.038bn and 4.71pc on SDR 1.099bn.