Latvia

Latvia's center-right government was poised to stay in power Sunday after voters backed its plans to continue painful reforms required by an international bailout program to fix the Baltic country's crippled economy, the Associated Press reported. With about 98 percent of precincts counted, Prime Minister Valdis Dombrovskis' minority coalition had mustered more than 57 percent of the vote in Latvia's parliamentary election Saturday. That would likely give it more than 60 seats in the 100-member legislature.

Failed Latvian lender Parex won European Union regulatory approval on Wednesday for its plan to split up its sound assets into a new bank as part of a restructuring to ensure its viability, Reuters reported. Parex's state bailout in November 2008 was one of the reasons why Latvia had to take an International Monetary Fund and European Union 7.5 billion euro ($9.75 billion) rescue package last year. Latvia handed over a restructuring plan for Parex, the country's second-largest bank prior to the credit crisis, to the European Commission in March.

A Latvian personal bankruptcy law passed by parliament yesterday won’t hurt Nordic lenders because provisions set aside for bad loans will cover the impact of the bill, according to Nordea Bank AB, Bloomberg reported. Latvia’s 100-seat legislature voted yesterday to pass the law, which will require lenders to forgive debt for private borrowers declared bankrupt after a maximum of three and a half years. Loans late by more than 90 days in Latvia reached 19 percent of the total in May, according to the country’s banking regulator.

The euro zone's decision to include the International Monetary Fund in any Greek rescue plan extends the Fund's influence to a large swath of the world economy—and gives a political boost to its managing director, The Wall Street Journal reported. Over the past two years, the IMF has worked with the European Union to bail out EU members, including Latvia and Hungary. Now it is clear that the IMF mandate reaches also to Portugal, Spain and other troubled members of the 16-nation euro zone, said Domenico Lombardi, a Brookings Institution expert on the IMF.

As Greece resists European demands for wider austerity measures, the contrast with the Baltic states couldn't be starker, The Wall Street Journal reported. Faced with similar market worries about their fiscal positions a year ago, Estonia, Lithuania and Latvia bit the bullet. Now there is light on the horizon: Standard & Poor's has lifted its rating outlook on all three to stable from negative, citing the successes achieved in fiscal consolidation. Greece should take note. All three have retained effective currency pegs rather than take the option of devaluation.

The tiny Baltic states have pursued closer integration with Europe with enormous zeal. But the price of monetary union may be giving them pause, The New York Times reported. Economists and ordinary citizens alike are watching the protests rumbling through the streets of Athens and the slow response to Greece’s problems coming out of Brussels. “Countries like Estonia and Latvia were once desperate to get in,” said Alf Vanags, director of the Baltic International Center for Economic Policy Studies in Riga.

Swedish banking group SEB said on Tuesday it would inject more capital into its operations in Lithuania and Latvia due to rising bad loan provisions. SEB spokeswoman Viveka Hirdman-Ryrberg said the bank made 5.95 billion Swedish crowns ($847 million) of loan loss provisions in the first half of the year due to the global financial crisis. Lithuania's economy nosedived into its worst recession since early 1990s with gross domestic product falling 20.2 percent in the second quarter.

Eastern Europe’s severe recession sent retail sales down an outsized 29 percent in Latvia in June compared to a year ago, 20 percent in Lithuania, 17.8 percent in Romania, and 10.5 percent in Bulgaria. The region is getting a cold shower after years of heady growth fueled by cheap bank loans and the euphoria of EU membership in 2004, The Associated Press reported. Latvia, a country of 2.3 million, remains a basket case.

Latvia's economy shed nearly one-fifth of its value in the second quarter compared with the same period last year, official data showed Monday, signaling a deepening of the Baltic state's recession, The Wall Street Journal reported. Gross domestic product fell 19.6% from a year earlier in the April to June period, the national statistics agency announced, led by a 28% slump in retail and a 19% drop in industrial production. The restaurant and hotel sector plunged 35% year-to-year. The fall is the sharpest since Latvia began keeping records in 1996.

The European Commission Wednesday said it has started an investigation into a rescue package give to Latvia's JSC Parex Banka to ensure the aid will be followed by sufficient restructuring at the bank, Dow Jones reported. Parex was rescued from going bust by the Latvian State in November through state guarantees, liquidity support and cash injections. The Latvian state submitted a restructuring plan for Parex in May, and the commission is now looking at whether the plan will enable Parex to return to long-term viability without distorting competition.