Eesti Elu
IMF: all three Baltic States have wide differences in coping with recession
Archived Articles 09 Oct 2009  Eesti Elu
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“You wouldn’t believe the tremendous differences even in micro regions like the Baltic states. All three states are at different stages in the recession,” said Marek Belka, the European director of the International Monetary Fund, at a press conference for the international media in Istanbul this week.

He added that all three states must deal with necessary budgetary constraints, but Estonia is in a much stronger position than Latvia and Lithuania.

The term “Baltic states” is widely used, but the developing regions of Europe, central and eastern Europe and other regions of Europe are in widely different circumstances, Belka said.

“There are differences within the Baltic states. Even though the GDPs in all three countries have fallen the same proportionate amount, the budgetary challenges are different,” stressed Anne-Marie Gulde, IMF senior counselor. Gulde led the IMF mission to Latvia in July.

“Estonia’s income, as budgeted, has accrued well, especially when compared to Latvia,” Gulde pointed out.

The three states also have similarities. All have currency committee systems or institutions similar to currency committees. “These systems offered stability during the economic changeover period. However, after joining the European Union, the systems aggravated the situation during a period of heavy capital inflow,” stated Gulde.

“We’re facing a dilemma. The currency committee systems have gained recognition. They’re looked upon as the backbone of some political movements. The systems evoke a deep feeling of ownership,” stated Gulde.

“At the same time the currency committee system makes adaptability difficult. Initially there is the question of coping with competition. The currency committee system precludes the ability of coping by changing currency exchange rates. So adaptability must come about through deflation, and adjusting salaries and budgets.”

Yes, Lithuania, Latvia and Estonia have shared the same fate in recent history and probably have similar reasons for maintaining vigilance in terms of national security. But individual positioning for a return to economic well-being will take different starting points.
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