The IMF had previously claimed that the Latvian economy could suffer a similar fate to Iceland's
The IMF had previously said that the similarities betweenthe Icelandic and Latvian economies put the Baltic state at risk of a similarcrash.
Peteris Strautins, the chief social economic expert at theLatvian branch of Swedbank, however, said that the country's low level offoreign debt would save it from an Icelandic-style economic crash.
"In Icelandthe figure was 594 percent of GDP on June 30, which is six times above Iceland'seconomic value in a year, while in Latviathe figure was 87 percent. Iceland'sbanks had a large amount of short-term debts -- 254 percent of the country'sGDP, while in Latviait is just 39 percent," the expert said.
He said that Icelandis a very small country with very large banks and thus, it should be comparedto Switzerlandrather than Latvia,but Iceland'sbanks as opposed to banks in Switzerlandand Latvia,were very light-minded.
"Icelandbecame a country and a hedge fund, its banks borrowed from the rest of theworld and invested in risky assets. Such a strategy is very profitable in thetime of economic growth and gave rapid income, but now it suffered a logicalloss," said Strautins.
"The risky position of Icelandwas not a secret to anyone before the large storms in the world's financialsector, which launched in mid-September. Iceland'siceberg was the large investment portfolios of banks (155 percent of GDP in Icelandas compared to 9 percent of GDP in Latvia)or investments in securities. Investments in stocks amounted to 91 percent ofGDP, while in Latviathese are only 2 percent of GDP. Thus, Iceland'sshort-term external liabilities of banks remained at the same level, but assetswere losing their values or became non-liquid," he said.
Latvian Commercial Banks Association President TeodorsTverijons also claimed that the country was not at risk of a crash like Iceland's.Lavian banks' investments are balanced and diversified, therefore they cannotsustain such losses as foreign banks did, Tverijonis said. "No bank in Latviais facing any trouble presently."
DnB Nord Banka president Andris Ozolins believes that Latviaand the other Baltic states should not worry that theymight see the same economic problems as Iceland."I think that in the current situation we can be afraid of manythings," he said.
"Icelandhas mainly domestic banks and their liabilities and assets are several timeshigher than the country's GDP," he said, underscoring that no parallelscan be drawn between the two countries.