PRAGUE, Oct 29 (Reuters) - The European Union's part in the
$25 billion Hungarian rescue package paves the way for other
possible bailouts for the bloc's ex-communist newcomers and
highlights the benefit of membership.
Although no other EU members have approached the European
Commission or the International Monetary Fund for aid, analysts
and diplomats say some countries, particularly the Baltics and
Romania and Bulgaria, could be next in line.
IMF Senior Advisor Anne-Marie Gulde said the larger-than-
expected deal was meant to bolster confidence in a region that
has seen its markets tank due to panic selling by foreign
investors that has typified the global deleveraging stampede.
"We felt that the size of the package should be such that
markets should be reassured that there's sufficient volume
behind it," she said. News of the package did just that, sending
currencies and stocks higher across the region.
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IMMEDIATE EFFECTS ON REGION
* Analysts said the package was not only enough to allay one
big fear -- a balance of payments crisis -- but it went further,
and news of the deal stabilised currencies and boosted stock
markets in EU members.
"It looks like everything has been pre-emptively done ...
looking at every possible vulnerability ... It's so large in
every aspect," said Commerzbank analyst Barbara Nestor.
"It's not just ... treated as a backup facility from the IMF
just in case a balance of payments crisis comes. It also deals
with the problems on the bond market, liquidity problems, and
possibly also secures funds for strengthening the economy, which
is probably going to shrink for several quarters."
* The Polish zloty <EURPLN=> was up 3.6 percent against the
euro at 1430 GMT, followed by the forint <EURHUF=>, up 3.15
percent on the day to the point of erasing roughly half of the
20 percent it had lost since the start of October. Romania's leu
gained 1.94 percent and the Czech crown <EURCZK=> 1.6 percent.
* But other eastern European currencies did not benefit.
Ukraine's hryvnia plummeted 14 percent at one point on Wednesday
to hit a record low of 7.05/20 per dollar. Analysts said it may
have also suffered due to expectations that budget cuts and
tight monetary policy demanded by the IMF could speed recession.
Serbia's dinar was slightly lower than flat at 84.64.
WHO IS NEXT?
* Analysts and some EU diplomats say unless the global
crisis eases, a Baltic EU state or fellow members Bulgaria or
Romania might be next in line for aid.
* Capital Economics EMEA economist Neil Shearing said any
idea that the Hungary package could somehow signal an end to
turmoil in central and Eastern Europe would be "somewhat
misplaced".
"There's a number of other countries that are on the brink:
the Balkans, the Baltics (Bulgaria and Romania), Turkey as well.
I think it's a matter of time before the IMF are called in
there."
Nestor said Romania, whose debt was cut to junk status by
credit rating agency Standard & Poor's on Monday, was one
country that might approach the EU or IMF. Romanian officials
have said they have no need to do so at present.
"Even if they don't need financing because they are fine for
the time being, it's a precautionary move," she said.
LONGER TERM
* Reinhard Cluse, an economist at UBS, said the region's
ability to raise funds was dependent mainly on whether the
credit crunch persists in western markets.
"Credit growth has been fuelled for years, and as that
decelerates, domestic dynamics will have to slow," Cluse said.
* Shearing said as investors unwind positions in emerging
markets, a lack of funding would hit the entire region, sending
all countries except Russia, Poland, the Czech Republic and
Slovakia into recession.
"This is a very serious funding crisis... The whole region
is teetering on the brink," he said. As liquidity begins to dry
up... these countries are going to suffer."
(Reporting by Michael Winfrey; editing by Stephen Nisbet)
