(Adds more vulnerabilities)
Oct 16 - Hungary's central bank has signed a 5 billion euro deal with the European Central Bank to boost euro liquidity. Hungary's Prime Minister Ferenc Gyurcsany has said the IMF may be an important ally in stabilising the forint
WHY IS HUNGARY VULNERABLE?
* The country has a large debt -- the gross external debt of the Hungarian state and companies amounted to 89.9 billion euros or 93.8 percent of gross domestic product (GDP) in the second quarter of 2008, while net debt was 46.3 percent of GDP.
* This is due to loose fiscal policy pursued since 2001 which boosted the budget deficit to above 9 percent of GDP in 2006 and prompted tough measures by the government to cut the deficit to a projected 3.4 percent this year.
* Hungary is seen posting a current account deficit of 5.3 billion euros or 4.9 percent of GDP this year according to the central bank. Next year this deficit is seen rising because slowing export growth will widen the trade gap.
* Hungary needs to refinance its existing debt by issuing forint-denominated and foreign currency bonds, which could be more difficult because of the global credit crunch.
* Much of the robust private sector credit growth seen in the past couple of years has been also funded externally. Continued...
The International Monetary Fund (IMF) is preparing a series of loans to both Hungary and Ukraine as financial problems are hitting the two countries. Hungary has already received a 5 billion credit line from the  (ECB). Ukraine is seeking a loan of up to 14 billion. 

Dominique Strauss-Kahn says the IMF is prepared to give loans to Hungary and Ukraine if needed.

The credit line to Hungary will be used to cover banks’ shortage of euros. Hungary has a severe debt problem with them posting an account deficit of €5.3 billion or 4.9% of GDP this year. As a result of this, Hungary is unable to find suitable credit to store up its supply of euros. 

"We are in close dialogue with the Hungarian authorities and the EU to discuss further responses to the current challenges, including possible technical and financial support by the IMF", said Dominique Strauss-Kahn, Managing Director of the IMF. "I have informed the authorities that the IMF stands ready to assist their efforts. We will provide technical assistance as needed and, in the context of a supportive policy setting, are ready to undertake decisions on possible financial assistance, responding rapidly."

Ukraine's Finance Minister  met with an IMF team on Thursday. In a statement, Pynzenyk said "the parties discussed a situation of influence the world financial crisis had on the economy of Ukraine." It is not yet known how much the IMF is expected to lend to Ukraine but it is expected to be between $3 billion to $14 billion. It is also not known what type of conditions might be placed on the loan. 

In addition to financial uncertainty, Ukraine is suffering from political turmoil with the current President, Viktor Yushchenko, calling a snap parliamentary election for December. The Prime Minister, ,  has made moves to stop the election. Ukraine's yearly trade deficit has increased by almost $7 billion since last year. 

The credit line by the European Central Bank is the first time publicly that it has extended help to countries other than the 15 that make up the . 

According to , Hungary might be able to start the process of joining the euro quicker then expected. Currently, Hungary is on track to join the euro in 2011 or 2012, but if sped up, it is possible it could join as early as 2010. This might protect Hungary from further financial problems.