Bloomberg.com exaggerated – Lithuanian Gvnt says that it doesn’t need IMF aid now

January 10, 2009 at 4:09 pm Leave a comment

Lithuanian Euro coin

Lithuanian Prime Minister Andrius Kubilius said on Thursday that currently the government does not plan to borrow from the International Monetary Fund noted the BNS.

As the agency BNS wrote the Lithuanian central bank governor also said earlier in the day that the country does not need international financial aid at the moment. However, he did not rule out turning to international institutions for help in the future, if a sharp economic downturn led to a budget revenue shortfall.

“We are not planning [to borrow] at the moment. The International Monetary Fund has given good marks to our [anti-crisis] plan. I will not attempt to predict today how the situation may develop in the future,” Kubilius told BNS.

Reinoldijus Sarkinas, the Bank of Lithuania’s governor, told BNS: “I don’t think that the situation in Lithuania is as bad as the International Monetary Fund’s representative says it is. It is quite possible that in the future we will have to cooperate with the IMF and other international organizations and to borrow, but today there is no need for borrowing.”

He was commenting on a Bloomberg report, which quoted Christoph Rosenberg, the head of the IMF’s mission to central Europe, as saying that Lithuania could be “the next east European economy in need of an international bailout after neighbouring Latvia was forced to seek aid because of the effects of the global financial crisis.”

However, the original message appears to be so updated that it does not really corresponds to the original message.  Just to compare this I have attached the original message on the bottom of this post.  It seems that Bloomberg have exaggerated this time.

The central bank governor said he was not certain if Rosenberg had actually said that Lithuania might have to borrow from the IMF.

The IMF last month extended a 7.5 billion-euro loan to Latvia.

As the BNS reminds Catriona Purfield, the head of an IMF mission, said in Vilnius last month that she did not see the need for Lithuania borrow from the fund.

This is the original message from the Bloomberg.com which stirred some waters in Lithuania.

Jan. 8 (Bloomberg) — Lithuania’s economy may be the next east European economy in need of an international bailout after neighboring Latvia was forced to seek aid because of the effects of the global financial crisis, Christoph Rosenberg, head of the International Monetary Fund’s mission to central Europe, said.
The Baltic economy may contract “at least” 2 percent this year, the Washington-based fund said in December compared with the Lithuanian central bank’s October outlook for an expansion of 1.2 percent. The IMF forecast signals that Lithuania will follow Latvia and Estonia into a recession next year as domestic demand wanes after banks tightened lending.
The three Baltic countries, which spent almost half a century as communist-run Soviet states, have been hit hard by the crisis as banks saw external funding dry up and exports slowed. Last month Latvia took a 7.5 billion-euro ($10.2 billion) IMF-led loan to strengthen the currency and shore up the banking system.
“Lithuania is in a more difficult position” than Estonia, Rosenberg said. “Estonia is the least vulnerable of the Baltics because it has big buffers. It’s been running a budget surplus for a number of years now and so there are fiscal assets.”
Lithuania’s economic sentiment index, which measures expectations in sectors including manufacturing, construction, retail and services, fell to the lowest in six years in December as concerns grow over a recession this year.
Baltic Slowdown
Estonia and Latvia lead the EU’s slowdown after contracting an annual 3.5 percent and 4.6 percent in the third quarter, respectively. Lithuania’s economy expanded 2.9 percent for the period. Latvia joined Iceland, Belarus and Hungary and other emerging-market nations in asking the IMF for aid.
Latvia’s problems were created by a soaring wages and a credit boom which saw funds channeled into non-tradable industries like real estate, retail and banking, Rosenberg said.
The economy wasn’t diversified enough and officials failed to curtail rapid credit growth or use counter-cyclical fiscal policies to cool the economy off before it was too late, he added.
“Latvia had the highest growth rate in the EU for several years, but it was a bubble,” he added.
Moody’s Investors Service said yesterday it had cut Latvia’s foreign-credit rating for the second time in three months amid fears of a deeper-than-expected economic decline. Inflation in Latvia, at 11.8 percent in November, is the highest in the 27- member European Union, compared with 2.1 percent in the euro area.
According to Rosenberg, the largest of the EU’s eastern members, Poland, is better equipped to survive the credit crunch.
“Poland avoided bubbles like the ones we’ve seen in the Baltics, where the economies are small and a few sectors have all resources poured into them,” he said. “Poland is fundamentally in a good position. Its economic fundamentals are much sounder than in the countries that are in trouble at the moment like Hungary or Latvia.”  

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