EconoMonitor

Don't Shoot the Messenger

The Baltic States May Soon Follow Hungary Into IMF Receivership

Well, the Icelandic aithorities seem to have bitten the bullet, and after some coming and going agreed to accept assistance from the IMF. An IMF mission is on the island preparing a plan which will then be put to the Icelandic government (protocols here are important). Under negotiation are the terms of any possible loan. According to Einar Karl Haraldsson (a political adviser to the Icelandic government) the plan is expected to be finalized in the next few days, after which the government will have to decide whether to accept the aid and the terms under which it is being offered.

Meantime a growing number of countries now seem to be at risk of following Iceland and Hungary into the arms of the IMF, with the Baltic republics of Estonia, Latvia and Lithuania now looking particularly vulnerable, according to a warning from the International Monetary Fund itself yesterday.

Dominique Strauss-Kahn, managing director of the IMF, which was formally approached yesterday for assistance by Hungary as well as Iceland, said: “The fallout for most banking systems in emerging and developing economies has been limited so far but signs of stress are growing, ” Strauss-Kahn said some banks in eastern Europe have become increasingly exposed to struggling property markets, having raised funds on international money markets in the same way as the ill-fated Icelandic banks.

For the time being the various national governments are denying the possibility, with Edgars Vaikulis, spokesman for Prime Minister Ivars Godmanis, being quoted in Bloomberg as saying “There is no reason to speak of threats to the Latvian financial system……Latvia’s situation is different from some of the eurozone members.”

I’m sure that the latter statement is true, even if not in the sense that Vaikulis meant. Nonetheless the Latvian government has taken the step of raising guarantees on all bank deposits to 50,000 euros ($68,225), in line with an earlier decision by European Union finance ministers.

In my view the threat to the Baltic financial systems is real, as is the threat to the Bulgarian and Romanian ones. Action, of some form or another needs to be taken, and soon. For a thorough analysis of the current threat to the Baltic economies, see this whopping post this morning from Claus Vistesen.


Originally published at A Fistful of Euros on Oct 14, 2008 and reproduced here with the author’s permission.

2 Responses to “The Baltic States May Soon Follow Hungary Into IMF Receivership”

LithuanianOctober 16th, 2008 at 5:23 am

Your sensationalist entry is simply ridiculous. Hungary is NOT in ‘IMF receivership’, so logically enough Baltic states cannot follow her there, where she is not.