Thursday

28th Mar 2024

Latvia follows Hungary in seeking IMF aid

Latvia has become the second European Union member state forced to seek emergency aid from the International Monetary Fund (IMF) as well as from the EU's own coffers.

The move by Riga comes after much speculation by analysts that the Baltic countries and other post-Communist states that joined the EU in 2004 would follow Hungary in needing an external capital boost to weather the financial crisis.

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  • Riga's move has prompted speculation as to who will be next to call for an IMF rescue (Photo: European Commission)

"We have decided to start official talks with the European Commission and the IMF about funding to stabilise the economy," Prime Minister Ivars Godmanis told reporters.

The Baltic country has seen a sharp economic slowdown this year, with a contraction of 4.3 percent in the third quarter, breaking its previous record of being one of the fastest growing economies in the EU.

The financial crisis has made it hard for Latvia to obtain funds in its attempts to counterbalance its large current account deficit.

The government has been forced to take over the country's second largest bank of Parex and offer millions of euro as guarantees to its creditors.

Riga has also denied rumours that the country may need to devaluate its national currency lats, pegged to the euro as part of the European Exchange Rate Mechanism (ERMII) since May 2005.

After Latvia's call for international help, analysts suggest there will now be continuing close observation of the other Baltic States and also Romania and Bulgaria.

Since the crisis broke, the IMF has so far provided €20 billion in a bail-out to Hungary, as well as a €1.7 billion loan to Iceland, plus a pair of programmes for Serbia (a preliminary deal worth €413 million) and Pakistan (€6 billion).

On Thursday (20 November), the Turkish Prime Minister, Recep Tayyip Erdogan, said that he was hopeful for a deal with the IMF on a rescue package by next week, with officials suggesting that a loan between €16 billion and €32 billion was likely.

The Washington-based IMF has warned that with the growing number of calls for emergency capital, the fund's reserves - €160 billion plus an extra €40 billion if needed - may dry up at some point.

Last week's G20 summit of most industrialised and developing countries did not agree to topping up the package, with only Japan pledging an additional €80 billion.

'Swiftly dial back' interest rates, ECB told

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