IMF: Baltic states could follow Iceland's lead
14.10.2008, 09:18More countries are at risk of following
Iceland into bankruptcy, with the Baltic republics of Estonia, Latvia and
Lithuania now looking particularly vulnerable, the International Monetary
Fund warned.
Dominique Strauss-Kahn, managing director of the IMF, which was formally
approached yesterday for assistance by Iceland, said: "The fallout for most
banking systems in emerging and developing economies has been limited so far but
signs of stress are growing, " The Independent writes.
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, now failed and
nationalised.
These banks may be forced to reduce credit and the risk of such a scenario
has risen, for instance, in the Baltic states, where house prices and credit
growth have fallen, Strauss-Kahn said. Unlike Iceland, Estonia, Latvia and
Lithuania are full members of the EU, and may turn to the EU for help if their
economies s begin to struggle.
Strauss-Kahn said the combination of tightening credit markets, rising
domestic interest rates and the global growth slowdown could increase the force
of the credit squeeze and rising defaults to a larger number of emerging markets
and some developing countries. "Vulnerabilities are increasing and some
countries with large current account deficits have had more difficulty financing
them," he said.