Former Communist ally is also considering debt relief package for Cambodia, despite its own financial problems

BLOOMBERG

Workers at a construction site in Phnom Penh. Hungary’s proposed concessionary loan to Cambodia would help fund the consturction of new infrastructure in the Kingdom.

HEAVILY indebted European Union member Hungary has discussed providing a US$50-million soft loan to Cambodia to help build infrastructure and promote agricultural productivity, officials said Sunday.

Abel Garamhegyi, the state secretary at Hungary's Ministry of National Development and Economy and a government commissioner for international economics affairs, has also said the total amount loaned could double.

Garamhegyi and a delegation of Hungarian government officials and businessmen met officials at the Ministry of Economy and Finance on Sunday and said the matter was now under negotiation.

"We want to focus on those areas in which Hungary has great expertise and advantages, and we have to negotiate those projects that Hungary can bring [to ensure] the most added value for Cambodia," Garamhegyi said. "We hope to sign the agreement this year. The term of this type of loan is usually 25 or 30 years with a zero interest rate."

Por Yutha, the head of the ministry's Bilateral Cooperation Division, said Hungary's foreign affairs minister would visit Siem Reap in May to open the Asia-Europe Meeting. Both parties will at that time discuss key aspects of the loan.

"If negotiations are successful, this will mark the first step for Cambodia cooperating with investors from Hungary," Por Yutha said.

We want to focus on those areas in which Hungary has great expertise.

Garamhegyi said improved economic development between the two countries still faced one obstacle - the US$433,000 debt that Cambodia has owed to Hungary since the 1980s when both cooperated as members of the Communist bloc.

$15.7b

The value of the IMF's Hungary bailout

The International Monetary Fund agreed to the package in November last year as the EU member suffered huge debt, a depreciating currency and reduced banking liquidity

Garamhegyi said Hungary would write off half of that loan at a signing ceremony on May 27, and would transfer the rest into a development fund for further cooperation between the two countries.

"If we can sign this agreement, it will open the possibility that Hungary will implement other financial programs and will pave the way for a US$100 million loan for research and development facilities," Garamhegyi said.

Hungarian economic woes

The timing of the prospective loan comes as Hungary is struggling under huge government and private debt that totalled nearly 100 percent of its annual GDP at the end of 2007, but has since come down after a bailout. 

Late last year the International Monetary Fund, EU and World Bank agreed to a $25-billion loan for Hungary as its economy faced collapse and its currency - the forint - came under massive pressure.