Hungary and Ukraine seek outside funding

THE GLOBAL credit crisis deepened yesterday as Hungary and Ukraine turned to international institutions for support in an effort to avoid following Iceland into financial turmoil.

The move came as equity markets tumbled around the world after publication of disappointing economic data in the US which sparked fears that the global recession might be deeper and more prolonged than had been thought.

It is the first time in the 15-month credit crunch that multilateral agencies such as the International Monetary Fund have agreed to help bail out European countries - a clear sign of the acute difficulties debtor nations face raising finance from credit-starved markets.

"Many countries seem to be experiencing problems because of the repatriation of private capital by foreign investors or the reduction of credit lines from foreign banks," Dominique Strauss-Kahn, IMF managing director, said in an interview with the Financial Times. "We are ready to support these economies and we are in discussions with a number of them."

The moves in eastern Europe came amid yet more turmoil on global markets. In one of the day's biggest moves, Japan's Nikkei 225 index fell 11.4 per cent, its worst one-day decline since the 1987 stock market crash. In Hong Kong, the Hang Seng fell 5.5 per cent, while stocks fell 6.7 per cent in Australia and 5 per cent in Singapore.

In the US, stocks fell back for a third day in a row, after the government said that manufacturing, or industrial production, suffered its sharpest slump in September since 1974.

The Iseq had another bleak day, with the Iseq slipping by another 3.8 per cent. The banks bore the brunt of the damage. Irish Life Permanent bucked the trend with a 6.7 per cent rise.

London's FTSE 100 closed down 5.3­ per cent at a five-and-a-half year low. In Europe, the Dow Jones Stoxx 600 also experienced its biggest two-day drop since 1987, when it fell by 5.4 per cent to 205.41. In France, the CAC 40 declined by 6.7 per cent, while the DAX declined by 5.7 per cent.

The fall-off in US manufacturing saw oil dip below $70 a barrel for the first time since August last year.

European markets were unsettled as Budapest asked the European Central Bank for credit and Kiev confirmed it was seeking an IMF loan to "stabilise Ukraine's financial system".

Authorities in Ukraine and Hungary insisted they were not in difficulties and Hungary's forint, which lost 7 per cent the day before, edged up 1.5 per cent.

In Kiev, the hryvnia dropped 3 per cent against the US dollar and equities plunged 5 per cent, taking them down nearly 80 per cent on the year.

The European Central Bank's €5 billion facility for Hungary was the first time it has publicly extended support outside the euro zone to a European Union member. The bank, which has occasionally made unpublicised loans, is not expected to give credit to non-EU states.

The IMF said this week it was also ready to help Budapest.

Hungary has run into trouble with borrowers taking out foreign currency loans, which are now drying up in the global credit squeeze, compounded by heavy budget deficits. Ukraine's banks face difficulties repaying foreign credits just as the current account is widening, with a slump in demand for steel, the country's main export. - (Financial Times service)