"HUNGARY IS VERY good at fighting crises, just not at avoiding them." So says Péter Felcsuti, managing director at Raiffeisen International’s Hungarian arm and chairman of the Hungarian banking association. Felcsuti has experienced several challenging periods in Hungary, such as in 2006 when a budget deficit of 10.1% of GDP forced the introduction of austerity measures, including a 2% rise in social security contributions and an increase in the minimum rate of sales tax for food and basic services from 15% to 20%. However, he says the liquidity crunch that is now hitting the central European nation differs from previous crises in that it is purely financial, brought about not through any internal political strife or banking mismanagement but by contagion from troubled western markets.
The composition of Hungary’s banking system and its economy makes it particularly vulnerable to strife in other markets, with almost 90% of banking assets in the hands of foreign-owned institutions and a large part of the Hungarian economy dependent on foreign companies. Such reliance on other regions makes Hungary highly susceptible to fluctuations in those markets, and moreover it is likely to suffer that contagion sharply. "A very big portion of the economy is driven by multinationals, and many large corporates are having difficulties raising funds," says François Régnier, general manager of BNP Paribas in Hungary.