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 between the Icelandic and Latvian economies put the Baltic state at risk of a similar crash.
Peteris Strautins, the chief social economic expert at the Latvian branch of Swedbank, however, said that the country's low level of foreign 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's economic value in a year, while in Latviathe figure was 87 percent. Iceland's banks had a large amount of short-term debts -- 254 percent of the country's GDP, 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 compared to Switzerlandrather than Latvia, but Iceland's banks 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 the world and invested in risky assets. Such a strategy is very profitable in the time of economic growth and gave rapid income, but now it suffered a logical loss," said Strautins.
"The risky position of Icelandwas not a secret to anyone before the large storms in the world's financial sector, which launched in mid-September. Iceland's iceberg 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 of GDP, while in Latviathese are only 2 percent of GDP. Thus, Iceland's short-term external liabilities of banks remained at the same level, but assets were losing their values or became non-liquid," he said.
Latvian Commercial Banks Association President Teodors Tverijons also claimed that the country was not at risk of a crash like Iceland's. Lavian banks' investments are balanced and diversified, therefore they cannot sustain 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 they might see the same economic problems as Iceland. "I think that in the current situation we can be afraid of many things," he said.
"Icelandhas mainly domestic banks and their liabilities and assets are several times higher than the country's GDP," he said, underscoring that no parallels can be drawn between the two countries.
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