Hungary favours local govt debt deal

Hungary's local governments have said they would seek an option to delay principal payments on about $3 billion worth of debt denominated in Swiss francs in a move that analysts said would be tantamount to debt restructuring.

Janos Lazar, the leader of the ruling Fidesz party's parliament group, who earlier this year floated the idea of consolidating local government debt, told the daily Nepszabadsag that any solution to the issue should only happen on a case-by-case basis.

"I think any unconditional, systemic local government consolidation is out of the question," Lazar told the paper.

Lazar is also the mayor of Hodmezovasarhely, a small town in southeastern Hungary, which struggles with a high debt burden.

The town has worked out a deal with its own bank already, Lazar said, adding that he proposed other local governments do the same.

The association of local governments said earlier this week that the extension of the grace period on their debt should happen on a voluntary basis.

The Hungarian Banking Association also said a moratorium on principal payments cannot serve as a uniform solution to the debt problems of the local government sector.

Hungary's OTP Bank and the Hungarian unit of Austria's Raiffeisen Bank International hold most of the local government issued debt in Hungary.

Local governments will have amassed nearly $10 billion in debt by the end of the year, according to a report published earlier this year by Pricewaterhouse Coopers.

Copyright Reuters, 2011