Politicians and analysts consider whether Latvian banks could become the new destination for money ‘of unclear origin.’
Martin Ehl, Transitions Online 26 March 2013
The day after Europe attempted to grasp the idea that the clients of Cypriot banks will be required to share in the rescue of the island’s economy through special taxes, Latvian Prime Minister Valdis Dombrovskis tweeted, “LV will not join the competition for deposits fleeing from Cyprus. LV treats non-resident business as risky and has tough regulation in place.”
Latvia has been recovering from the deepest decline in GDP among EU member states during the crisis of 2009. Indeed, last year the country had the highest GDP growth and paid back – early – its emergency loan from 2009. Now Latvia is heading to the euro zone, and worries have grown among politicians that the country – known, thanks to its large Russian minority and active banks, as the Switzerland of the post-Soviet space – might come to be known as Cyprus No. 2. It could seem to some, after all, that Latvia would be the logical choice for Russian clients looking for a safe haven for their money inside the euro zone. Sketchy estimates of the share of Cyprus’ 68 billion euros ($87.5 million) in bank deposits held by Russians are around 30 to 40 percent.
Much of that has been described as having an unclear origin.
One of the causes of the Latvia crisis was the huge expansion of the debt bubble, in which the banking sector also played a role until 2009. The bubble burst, but Latvian bankers have since recovered. Currently foreign clients (non-residents) have about 5.5 billion lats (7.8 billion euros/$10 billion) stored away in Latvia, which is around half of all deposits.
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Latvia as Another Cyprus?