And not just default - now it is almost clear that a chaotic Russia is ready to retreat from years of progress toward a free market.
Back in the USSR? Not yet, probably. But some years of political chaos and economic turmoil are ahead - that's for sure!
The Baltic financial authorities should definitely rethink their market development strategy. It is clear that the Baltics will be badly affected by Russia's economic collapse. Most of the foreign investors will substantially reduce (at least in short-to-middle term) their exposure to all emerging markets.
But markets in Latvia, Lithuania and Estonia will definitely lose more than those in Latin America, because there are too many direct connections between the economies of Russia and the Baltics. I would say that the international rating agency Fitch-IBCA is too optimistic declaring that the Baltics are "well-placed to weather the current bout of Russian flu".
I don't want to speculate on the amount of Russia's T-bills in the Baltic banks' portfolios. Let's take as an example just one macro-economic indicator - the extremely high current account deficit in Estonia and Lithuania. Both countries were able in the past to sustain such deficit only because of a large influx of foreign investments. Now most of the Western investment projects will likely be put on hold, a move that definitely will slow economic growth, which was as high as 11.4 percent in Estonia last year.
However, I would also disagree with some Baltic leaders who say the Baltics should substantially decrease their exposure to the CIS markets.
For example, most of the Baltic banks have succesfully worked in Russia since 1991/1992. Why should they lose their experience? Also Baltic meat packers and cheese makers will definitely try to keep (and also increase) their market share in Russia. And Baltic commercial banks will be ready to help food-processing companies to arrange settlements - a procedure that will be difficult following the crisis.
It is also highly possible, that Russian oil transit through the Baltic ports might increase substantially in the near future, because Russia will definitely meet difficulties now in building its own new oil terminals in the North Sea.
Thus, the Russian crisis may bring both problems and opportunities for the Baltics. The financial authorities of the Baltic countries should continue to implement conservative macroeconomic policies. New Russia's reality might also become the best stimulus for the Baltics to speed up the process of consolidation of the Baltic financial markets. Such consolidation might substantially increase the chances of survival for the Baltic economies.