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Hungarian Finance Minister Peter Oszko said the government will consider selling foreign-currency denominated bonds this year to take advantage of rising investor confidence in the first European Union nation to get a bailout.

The country is testing the market with forint-denominated offerings and expects that its spending cuts, endorsed by the International Monetary Fund, will boost investor confidence and may allow its budget financing to wean off emergency loans, Oszko said in an interview in Budapest yesterday.

Hungary secured 20 billion euros ($27.2 billion) in loans from the IMF, the EU and the World Bank to avert a default after bond demand dried up, forcing the government to scrap auctions in October. The country restarted regular debt sales last month and plans its fourth offering this year tomorrow.

“It’s our plan that later in the year we will consider the issuance of foreign-exchange based government bonds,” Oszko said in his office. “We would like to see what the risk appetite is towards the market and whether the trust towards Hungary is increasing. We think this is happening.”

He didn’t say how much the government would look to raise or at what yield. Hungary last sold foreign-currency bonds in June, when it raised 1.5 billion euros ($2 billion) at a 5.75 percent yield. The notes yielded 6.953 percent on May 18, the latest Bloomberg data show.

Foreign Borrowing

The Czech Republic sold international bonds on April 29 for the first time since June, raising 1.5 billion euros. Slovakia, which adopted the euro in January, raised 2 billion euros, a record for the country, in a May 14 sale.

Foreign-currency borrowing, along with slower growth, a wider budget deficit and higher government debt than elsewhere in eastern Europe raised concern about Hungary’s ability to repay its debt last year.

The government has been cutting spending to reduce its reliance on external financing and to meet the terms of the IMF- led loan. Prime Minister Gordon Bajnai’s administration, which took over last month to lead the country until elections scheduled for next year, plans to cut spending by 1 pay day loans.3 trillion forint ($6.4 billion) through the end of 2010.

IMF and EU officials this week approved Hungary’s plan to run a wider budget deficit this year and next than earlier targeted. The budget gap is now forecast at 3.9 percent of gross domestic product for this year, from 2.9 percent earlier. Next year’s shortfall is planned at 3.8 percent. Avoiding deeper spending cuts will limit the economic contraction, now forecast at 6.7 percent for this year, Oszko said.

Gyurcsany Toppled

The recession, set to be the worst since 1991, toppled the administration of Socialist Premier Ferenc Gyurcsany. Bajnai, who isn’t a member of any political party, has pledged to shore up the country’s finances with “painful” policies.

Measures include a pension cut and the reduction of public wages, as well as curbed subsidies for housing loans. The government also plans to cut the payroll tax and personal income tax to boost growth while increasing taxes on consumption and wealth to keep the budget deficit in check.

“Will the sound economic policies allow Hungary to finance its budget from the market? That’s the goal and we’re doing everything we can but it doesn’t only depend on us and that’s why we must keep the door open to further loans,” Oszko said.

The government’s measures are contributing to stabilizing the forint “indirectly but strongly,” Oszko said.

The currency fell to a record against the euro in March, trading at that point 38 percent lower than in July. It has since gained 12 percent, partly as a result of government measures, according to the minister. The forint traded at 276.65 against the euro at 9:07 a.m. from 277 late yesterday.

“That’s our main goal: to have a stable exchange rate,” Oszko said. “What the new government has already achieved is that the forint is no longer lagging behind regional currencies.”

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