IMF and EU agree to rescue for Hungary

By Lesley Wroughton

WASHINGTON (Reuters) - The International Monetary Fund, the European Union and World Bank on Tuesday agreed to a $25.1 billion (15.66 billion pound) economic rescue package for Hungary to bolster confidence in its economy hit by the global financial crisis.

The IMF said in a statement it had reached an agreement with Hungary for a $15.7 billion loan program, while the European Union stood ready with an additional $8.1 billion in financing and the World Bank another $1.3 billion. The IMF loan will be disbursed over 17 months.

It is the biggest international rescue package for an emerging market economy since the start of the current global crisis and is the first for an EU-member country. Last week the IMF approved a $2.1 billion deal for Iceland and a $16.5 billion program for Ukraine.

The IMF said its board could approve the Hungary deal in early November under emergency rapid-response procedures activated earlier this month as the credit market crisis spread from the United States and Western Europe.

"The Hungarian authorities have developed a comprehensive policy package that will bolster the economy's near-term stability and improve its long-term growth potential," IMF Managing Director Dominique Strauss-Kahn said in a statement.

"At the same time it is designed to restore investor confidence and alleviate the stress experienced in recent weeks in the Hungarian financial markets," he added.

The IMF financing is more than 10 times Hungary's IMF quota, above the limit of three times the quota for countries seeking to borrow. Each IMF member is assigned a quota based on its size in the world economy, which determines its financial commitment to the fund, its voting power, and has a bearing on how much it can borrow from the global lender.

Hungary's economy has been battered by the financial crisis because its banking system is heavily exposed to foreign financing at a time when investors are pulling back from developing economies worldwide.