Posted on June 1, 2012 by iMFdirect
By Mark Griffiths
Latvia, a nation of about 2.2 million people bordering the Baltic Sea, went through the most extreme boom-bust cycle of the emerging market countries of Europe, and was among the first to ask for financial assistance from the international community.
Back in the dark days of December 2008, many doubted that Latvia—which joined the European Union in 2004 together with its Baltic neighbors Estonia and Lithuania—would be able to stick to the tough economic program it had just agreed with the IMF and the European Union. But it did. Against the odds, it successfully completed its IMF-supported program in December 2011.
Over the past three years, I have worked closely with the Latvian authorities in my capacity as IMF mission chief. Worked with them—but learnt from them too.
A successful comeback
Today, Latvia is one of the fastest growing economies in the European Union. Real GDP grew by 5½ percent in 2011, and is now projected to expand by 3½ percent in 2012, a number that possibly will come out even higher.
Filed under: Advanced Economies, Economic Crisis, Economic outlook, Economic research, Emerging Markets, Europe, Financial Crisis, growth, IMF, Inequality, International Monetary Fund, Politics, Public debt, recession | Tagged: Baltics, Christine Lagarde, Estonia, euro, Giancarlo Corsetti, IMF, Jörg Asmussen, Latvia, Lithuania, Olivier Blanchard, Olli Rehn, the Bank of Latvia, Valdis Dombrovskis | 1 Comment »
Posted on January 7, 2011 by iMFdirect
By Christoph Rosenberg
Two years ago, the eyes of the financial world were not on Europe’s Western periphery but on its North-Eastern corner. The three Baltic states—Estonia, Latvia and Lithuania—were among the first victims of the global financial crisis.
After a spectacular boom, with several years of Chinese-style growth rates, these small and open economies faced an equally spectacular bust. Credit―and with it property prices, consumption, and investment―collapsed. Exports were hit by the global depression. And the financial sector came under severe stress. Indeed, Latvia was forced to nationalize its largest domestic bank and had to ask for a bailout from the European Union and the IMF.
The conventional wisdom at the time was that these three countries would have to give up their long-standing currency pegs against the euro and devalue. After all, this is what countries facing a trade and financial shock most often choose to do.
Filed under: Economic Crisis, Emerging Markets, Employment, Europe, Fiscal Stimulus | Tagged: bailout, Baltics, banks, crisis, currency, Estonia, EU, euro, euro area, Europe, European Union, eurozone, growth, Ilmars Rimsevics, IMF, Ingrida Simonyte, jobs, Jurgen Ligi, Latvia, Lithuania, loan, markets, meltdown, recovery, unemployment | 11 Comments »
Posted on February 10, 2010 by iMFdirect
By Marek Belka
As the deep recession in Europe’s emerging market countries finally comes to an end, the question on everyone’s minds is where growth in the region will come from in the years ahead. Exports are rebounding, and domestic demand is showing signs of stabilization. Most countries will see positive GDP growth this year—a stark difference from 2009. But a return to the high growth rates that preceded the crisis is highly unlikely.
An unbalanced picture
During the boom years, Eastern Europe grew rapidly, but growth in many countries was rather unbalanced. Capital inflows were large, but to a great extent went to the “non-tradable” sector—in particular, real estate, construction, and banking. Capital flows boosted domestic demand rather than supply—leading to a surge in imports, current account deficits that widened to unprecedented levels, and overheating economies.
This kind of growth will not come back. The domestic demand boom came to an end in the fall of 2008. In the global financial turmoil that followed the demise of Lehman Brothers, capital flows to Eastern Europe plunged, leading to a sharp decline in domestic demand. Further exacerbated by a decline in exports, this contributed a deep economic downturn—in the Baltics and Ukraine, GDP declined between 14 and 19 percent last year.
Filed under: Economic Crisis, Emerging Markets, Europe, Financial Crisis, growth, recession | Tagged: Baltics, banking, Bulgaria, capital flows, construction, Czech Republic, Estonia, exports, labor force, Latvia, Lithuania, real estate, Romania, Slovak Republic, Ukraine | Leave a comment »