Latvia watchers will be awaiting the end of the IMF’s mission to Baltic country on Friday with trepidation.
We already know the talks have been difficult. And while Latvia technically can survive without receiving the second tranche of IMF aid being discussed, failure to do so could result in credibility issues. Meeting any new conditions on the €7.5bn worth it has already received from the IMF, meanwhile, could be tough for a country that has already had to extensively cut public spending to maintain its budget.
It’s no surprise the talks have been thorny, however.
As the New York Times makes clear, the result of the mission will not just open Latvia up to scrutiny. It’s also a crucial test for the IMF too. As they write:
For those who remember that the International Monetary Fund backed an ill-advised currency peg until it was too late, the case of Latvia is awfully unnerving.
Meanwhile, as we await official statements from the mission, Latvia watchers might be inclined to take a closer look at Friday’s results from Sweden’s Swedbank for a hint of how country’s crisis is already impacting other European states. Sweden’s banks, of course, are among the most exposed to the Baltic nation.
As Reuters reports (our emphasis):
STOCKHOLM, July 17 (Reuters) – Banking group Swedbank posted a bigger-than-expected second-quarter operating loss on Friday hurt by huge provisions for souring credits in the recession-hit Baltic region. The loss was 1.85 billion Swedish crowns ($237 million) against a forecast for a loss of 1.25 billion crowns.
It was the second quarter in a row the bank has posted a large loss, battered mainly by double-digit contractions in the economies of Latvia, Lithuania and Estonia, where Swedbank is a major player.
Loan losses — which includes provisions for possible future non-payment of borrowers’ debts — were 6.67 billion crowns, with net writeoffs at 534 million crowns. The figures compared with an expected 5.99 billion in total impairment charges. In the first six months of the year, net impairment losses on loans amounted totalled 13.52 billion crowns against 711 million crowns in the same period in 2008. Swedbank said it would cut around 3,600 staff to adjust to the tougher economic conditions, mainly in the Baltics and its other international operations.
That’s a good indicator of how quickly things are descending.
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UPDATE: 11am
Looks like talks are still deadlocked. The latest from Reuters is that the IMF mission will now continue into next week.
Related links:
Trouble in Latvia, again – FT Alphaville
The IMF/EU Commission rift on Latvia deepens – A Fistful of Euros
The EU in 140 Characters – FT Alphaville