UPDATE 1-Hungary needs quick and painful reforms - Bajnai

Mon Mar 30, 2009 5:11am EDT

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BUDAPEST, March 30 (Reuters) - Hungary, faced with the biggest economic downturn in nearly two decades, must implement fast and painful reform measures or risk a deepening crisis, prime minister designate Gordon Bajnai said on Monday.

Non-partisan Bajnai is set to replace outgoing Prime Minister Ferenc Gyurcsany, who announced earlier this month he would step aside to allow the formation of a new government with broader political support.

Gyurcsany had headed a minority Socialist government for one year after the opposition Free Democrats quit his coalition.

Bajnai secured backing from the ruling Socialists and the Free Democrats, who hold the balance of power in parliament, in overnight talks early on Monday. He said his government was viable only as long as it had a clear legislative majority.

"Hungary is threatened by the economic crisis. This also means that Hungary has no time to waste," Bajnai told a news conference. "Every week wasted ... could cost the country hundreds of billions (of forints) and tens of thousands of jobs."

The main opposition Fidesz party, which leads in opinion polls, wants an early election.

Hungary secured a $25.1 billion International Monetary Fund-led lifeline in October and most economists said it must implement swift measures to prevent an excessive budget deficit due to a bigger-than-expected economic downturn.

A recent Reuters poll HUGDP1 showed analysts expect Hungary's economy to contract by 4.5 percent this year, faster than the government's latest projection for 3.5 percent.

Bajnai said quick and credible reforms, which he did not outline in detail, could restore investor confidence in Hungary and put the country back on track to joining the euro zone. Most analysts doubt Hungary will be able to adopt the EU currency before 2014.

Hungary's forint EURHUF= has lost more than 20 percent of its value versus the euro since last summer, putting heavy strain on hundreds of thousands of households with foreign currency loans.

At 0852 GMT, the forint traded at 307 against the euro, nearly 1 percent weaker than Friday.

"The jobs and livelihoods of tens but maybe hundreds of thousands depend on how we manage this economic crisis," Bajnai, who is not a party member, said.

Hungary's unemployment rate jumped to 9.1 percent in the December-February period from 8.4 percent in November-January and some economists have said it could rise above 10 percent due to a collapse in exports and industrial production.

"If we do not act immediately and drastically, then we cannot avert bigger trouble, that the crisis intrudes into the lives of families and enterprises even deeper," Bajnai said.

"The implementation of the programme will hurt, it will demand sacrifice from many ... it will affect every family and every Hungarian but it will have results."

(Reporting by Gergely Szakacs and Sandor Peto, Editing by Matthew Jones)

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