TALLINN - Swedish banks have been taught a good lesson during Latvia’s period of recession, and have been paying for their mistakes with losses, said Bank of Latvia President Ilmars Rimsevics in an interview with the Latvian Radio talk-show ‘Krustpunkts,’ reports Nozare.lv. He pointed out that at the beginning of the economic crisis, the International Monetary Fund, as well as investors, was concerned with the possibility that Swedish banks could flee Latvia, however, the banks have remained, continuing their work in Latvia.
“Swedish banks are still here, and their presence ensures macro-economic stability. They have huge resources, which other banks or governments do not have,” said Rimsevics.
According to the bank president, the Bank of Latvia warned the Swedish banks already in 2004 what the consequences would be for such rapid circulation of funds, and that the Latvian economy would overheat; however, the Swedes said that they know what they are doing and that if any threats appear to Latvia’s economy, they would say what actions need to be taken.
“The Swedish banks would be happy to go back into time when discussions on the economy were taking place back in 2004 and 2005,” Rimsevics pointed out, and added that it would be wrong to look for those responsible at the moment, and that work needs to be carried out so that nothing like this happens again in Latvia.
Looking further afield, he goes on to say that Estonia’s accession to the euro area is in the entire region’s interest, because it will promote stability in all Baltic countries, build trust in the region’s economic environment and signal that Latvia and Lithuania would also join the eurozone soon. Rimsevics admits though that Latvia will lose time and foreign investment, because investors will prefer to invest their money in a country that has proven it is able to keep things in order and has the euro as the national currency.
In Rimsevics’ opinion, Estonia’s success has been thanks to the Estonian government’s prudent budget policy. “We can learn from our neighbor’s example, and I believe that Latvia can do the same,” he said.
He agrees with Estonian President Toomas Hendrik Ilves that the euro will not solve all of Estonia’s problems. “Indeed, the euro will not guarantee economic growth, but it will create better conditions for economic development. The euro is not an alternative to structural reforms, nevertheless, it means greater security,” he said, adding that investors, depositors, banks, companies and residents would trust the euro more than the kroon.
The European Union finance ministers on July 13 gave their final approval for Estonia’s accession to the euro area, with the switch to take place on Jan. 1 next year. The finance ministers also set an exchange rate for the conversion of Estonian kroon into euros.
Estonia will become the 17th member of the single currency area after it met EU entry requirements on inflation, debt and deficit levels, interest rates and currency stability. The Baltic country of 1.3 million people has long had its kroon currency fixed against the euro in a currency peg at 15.6466 kroons to one euro. The ministers agreed to keep that exchange rate as the final conversion rate.