HUNGARY - The executive board of the International Monetary Fund (IMF) has agreed to grant Hungary a €12.3bn stand-by arrangement, though officials have demanded the country make "substantial fiscal adjustments" and revise its pension system.

The IMF today announced the programme focuses on the fiscal and the banking sectors, the country's most vulnerable areas, though the country will need to revise wages and pensions given the structure of the Hungarian budget.

"Under the authorities' programme, expenditure restraint will be achieved in part through reductions in the overall government wage and pension bill. Nominal wage adjustments will be postponed and pension bonuses suspended," said the IMF in a statement.

The plan will see an revision of Hungary's public pensions sector and cut spending on high-earning public sector employees' pension until next year.

Anne-Marie Gulde, the IMF's mission chief for Hungary who was involved in discussions on the financing package, commented today however that in deciding on the necessary adjustments "the authorities have been mindful of the social impact, and on the pension measures that are included in the programme, low-income pensioners are excluded from cuts of benefits."

She added: "In the fiscal sector, a necessary reduction in the size of the public sector through lower expenditures will ease the country's short-term financing pressures and bring down the high levels of debt."

The IMF's 17-month stand-by financing facility for Hungary is part of a $25bn (€19.59bn) financing package to which the European Union has committed €6.5bn alongside $1.3bn from the World Bank.

The IMF has been in discussions with a number of other countries about loans in recent weeks to help them fend off the impact of the global financial crisis, which has triggered a worldwide economic downturn.

The IMF approved a $16.4bn loan for Ukraine on 5 November.

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