They will be coming to their tyrannical master in no time.
Baltic states could follow Iceland's lead, warns IMF
By Sean O'Grady
Tuesday, 14 October 2008
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More 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 has 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."
M. 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, M. 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.
M. 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.
Argentina, Ukraine and Kazakhstan are also increasingly mentioned as economically vulnerable nations, but the IMF has already sounded a major warning signal over eastern Europe. In its Global Financial Stability Report, published last week, the IMF said: "House prices in eastern Europe have soared in tandem with domestic credit growth, and the credit portfolios of banks in emerging Europe have become increasingly exposed to the real estate sector." This, said the fund, could lead to bank losses and a sharp credit crunch if the banks then contract their lending. "The risk of such a scenario has risen, for instance, in the Baltics, where house price appreciation has slowed or prices have fallen," the report said.
The IMF is the last port of call for countries whose financial systems have collapsed, with yesterday's announcement by Iceland that it was seeking help having been widely expected.
The Icelandic government also revealed yesterday that the Bank of England is to loan £100m to the UK arm of the collapsed Icelandic bank Landsbanki. The money will be used to help repay the bank's UK creditors, who include thousands of savers at Icesave, its internet business.
A spokesman for the British Treasury said: "This loan will help ensure an orderly wind-down of Landsbanki which will maximise the return to UK creditors."
http://www.independent.co.uk/news/business/news/baltic-states-could-follow-icelands-lead-warns-imf-960333.html--------------------------------------------
