Sweden could contribute to Latvian assistance package

Sweden is ready to send a substantial sum of money across the Baltic Sea to prop up the ailing Latvian economy, according to media reports in Latvia Monday.

Latvian current affairs TV program "Nothing Personal" claimed Sunday night that the first economic aid payments could arrive by the end of this week, and the Latvian press contained similar reports on Monday.

The TV show said Latvia will receive around three billion euros from the International Monetary Fund (IMF), with which the Latvian government is attempting to negotiate an economic assistance package, reported dpa.

More money would be provided by the European Commission, which is on the record saying that it "stands ready to help", plus the World Bank and the Swedish central bank, it was claimed.

Ratings agency Fitch estimated last week that Latvia could require around 6 billion dollars of assistance in total.

Official sources have yet to confirm Sweden's involvement. A Latvian Finance Ministry spokesperson told Deutsche Presse-Agentur dpa on Monday: "It's possible as part of a complete package together with the IMF and European Commission."

If regional governments such as Sweden are prepared to step in with aid, the final deal could in some ways resemble the 6 billion-dollar aid package Iceland secured in October after the collapse of its financial sector.

However, Sweden's interest in bolstering Latvia lies in avoiding trouble in the Baltic state's financial sector.

Two of the three largest banks in Latvia, Swedbank and SEB, are Swedish, and Swedish companies have been among the most active investors in Latvia ever since the Baltic state regained its independence from the Soviet Union in 1991.

The second-largest bank, Parex, has already been nationalized by the Latvian government in a bid to stabilize the financial system.

Latvia's negotiations with the IMF are still continuing, but on Sunday Christoph Rosenberg, the IMF mission chief, issued a statement saying good progress had been made towards a possible fund-supported program for the country.

"In cooperation with the European Commission, some individual European governments, and regional and other multilateral institutions, we are working with the authorities on the design of a program that maintains Latvia's current exchange rate parity and band," Rosenberg said.

"This will require agreement on exceptionally strong domestic adjustment policies and sizeable external financing, as well as broad political consensus in Latvia," he added.

Danske Bank analyst Lars Christensen told Deutsche Presse-Agentur dpa that in principle it would make sense for Sweden to get involved in helping Latvia.

"There is a significant need for outside funding and help. Given the presence of the Swedish banking sector there it makes a lot of sense to have Sweden playing an active role. The Swedes have quite a lot of experience in dealing with these situations," he said.

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