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Denmark, Sweden grant euro500 million loans to Latvia

(Agencies)
Updated: 2008-12-16 23:48

RIGA, Latvia -- The central banks of Sweden and Denmark said Tuesday they have opened credit facilities worth euro 500 million ($690 million) for Latvia to help the crisis-plagued country stabilize its economy amid the global financial turmoil.

Latvia's President Valdis Zatlers (L), Estonia's President Toomas Hendrik Ilves (C) and Lithuania's President Valdas Adamkus attend a news conference in Sausti November 25, 2008. The central banks of Sweden and Denmark said Tuesday they have opened credit facilities worth euro 500 million for Latvia to help the country stabilize its economy amid the global financial turmoil. [Agencies]

The swap agreements will allow Latvia to borrow euro 375 million from Sweden's Riksbank and euro125 million from Denmark's Nationalbank against its own national currency, the lat.

Martins Gravitis, a spokesman for Latvia's central bank, said the funds, if utilized, would be used to bolster the Baltic state's macroeconomic and financial stability.

In the past couple months the bank has burned through nearly one-third of its strategic reserves as confidence in the Latvian lat dropped.

Riksbank Governor Stefan Ingves highlighted the risk of Latvia's financial woes spreading to financial markets in Sweden and neighboring countries.

"Ultimately, it could affect the payment system and the Swedish economy," he said. "It is therefore in the Riksbank's interest to help to avoid such a situation by entering into a swap agreement with the central bank of Latvia."

The announcement comes as Latvia's government is in talks for a larger loan of about euro 5 billion ($6.8 billion) from the International Monetary Fund.

Latvia's economy, for years the fastest growing in the EU, contracted by 4.6 percent year-on-year in the third quarter, the worst result in the 27-member bloc.

Plummeting revenues, plus the need to bail out the nation's second largest financial institution, Parex Bank, forced the government in November to turn to international institutions for emergency financial aid.