2008–2009 Latvian financial crisis
Encyclopedia
The 2008–2010 Latvian financial crisis, which stemmed from the global financial crisis of 2008–2009, was a major economic and political crisis in Latvia
. The crisis was generated when an easy credit market burst, resulting in an unemployment crisis, along with the bankruptcy of many companies. However in 2010, Growth was slowly picking up.
In 2008, after years of booming economic success, the Latvian economy took one of the sharpest downturns in the world, picking up pace in the last quarter which saw GDP contract by 10.5%. In February 2009 the Latvian government asked the International Monetary Fund
and the European Union
for an emergency bailout loan of 7.5 billion Euros, while at the same time the government nationalized
Parex Bank
, the country's second largest bank. On concerns of bankruptcy, Standard & Poors subsequently downgraded Latvia's credit rating to non-investment grade BB+, or "junk", its worst ever rating. Its rating was put on negative outlook, which indicates a possible further cut. On February 20 the Latvian coalition government headed by Prime Minister
Ivars Godmanis
collapsed.
The Baltic States
have been amongst the worst hit by the global financial crisis. In December 2008 the Latvian unemployment rate stood at 7%. By December 2009, the figure had risen to 22.8%. The number of unemployed has more than tripled since the onset of the crisis, giving Latvia the highest rate of unemployment growth in the EU. Early 2009 estimates predicted that the economy would contract by around 12% in 2009, but even those gloomy forecasts turned out to be too optimistic as the economy contracted by nearly 18% in the fourth quarter of 2009, showing little signs of recovery.
However by 2010 commentators noted signs of stabilisation in the Latvian economy. Rating agency Standard & Poor's
raised its outlook on Latvia's debt from negative to stable. Latvia's current account, which had been in deficit by 27% in late 2006 was in surplus in February 2010. Kenneth Orchard, senior analyst at Moody's
investors service argued that:
Latvia
Latvia , officially the Republic of Latvia , is a country in the Baltic region of Northern Europe. It is bordered to the north by Estonia , to the south by Lithuania , to the east by the Russian Federation , to the southeast by Belarus and shares maritime borders to the west with Sweden...
. The crisis was generated when an easy credit market burst, resulting in an unemployment crisis, along with the bankruptcy of many companies. However in 2010, Growth was slowly picking up.
In 2008, after years of booming economic success, the Latvian economy took one of the sharpest downturns in the world, picking up pace in the last quarter which saw GDP contract by 10.5%. In February 2009 the Latvian government asked the International Monetary Fund
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
and the European Union
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
for an emergency bailout loan of 7.5 billion Euros, while at the same time the government nationalized
Nationalization
Nationalisation, also spelled nationalization, is the process of taking an industry or assets into government ownership by a national government or state. Nationalization usually refers to private assets, but may also mean assets owned by lower levels of government, such as municipalities, being...
Parex Bank
Parex Bank
Parex Banka is a Latvian bank with branches in Berlin, Stockholm and Tallinn, and representative offices in Tokyo, Moscow, Kiev, Baku and other cities. The bank employs 2,600 staff in 14 countries....
, the country's second largest bank. On concerns of bankruptcy, Standard & Poors subsequently downgraded Latvia's credit rating to non-investment grade BB+, or "junk", its worst ever rating. Its rating was put on negative outlook, which indicates a possible further cut. On February 20 the Latvian coalition government headed by Prime Minister
Prime minister
A prime minister is the most senior minister of cabinet in the executive branch of government in a parliamentary system. In many systems, the prime minister selects and may dismiss other members of the cabinet, and allocates posts to members within the government. In most systems, the prime...
Ivars Godmanis
Ivars Godmanis
Ivars Godmanis is a Latvian politician and currently 1 of the 8 Latvian MEPs in the European parliament. He was the first Prime Minister of Latvia after the country became independent from the Soviet Union, and he became a Prime Minister for the second time in December 2007.Godmanis served as...
collapsed.
The Baltic States
Baltic states
The term Baltic states refers to the Baltic territories which gained independence from the Russian Empire in the wake of World War I: primarily the contiguous trio of Estonia, Latvia, Lithuania ; Finland also fell within the scope of the term after initially gaining independence in the 1920s.The...
have been amongst the worst hit by the global financial crisis. In December 2008 the Latvian unemployment rate stood at 7%. By December 2009, the figure had risen to 22.8%. The number of unemployed has more than tripled since the onset of the crisis, giving Latvia the highest rate of unemployment growth in the EU. Early 2009 estimates predicted that the economy would contract by around 12% in 2009, but even those gloomy forecasts turned out to be too optimistic as the economy contracted by nearly 18% in the fourth quarter of 2009, showing little signs of recovery.
However by 2010 commentators noted signs of stabilisation in the Latvian economy. Rating agency Standard & Poor's
Standard & Poor's
Standard & Poor's is a United States-based financial services company. It is a division of The McGraw-Hill Companies that publishes financial research and analysis on stocks and bonds. It is well known for its stock-market indices, the US-based S&P 500, the Australian S&P/ASX 200, the Canadian...
raised its outlook on Latvia's debt from negative to stable. Latvia's current account, which had been in deficit by 27% in late 2006 was in surplus in February 2010. Kenneth Orchard, senior analyst at Moody's
Moody's
Moody's Corporation is the holding company for Moody's Analytics and Moody's Investors Service, a credit rating agency which performs international financial research and analysis on commercial and government entities. The company also ranks the credit-worthiness of borrowers using a standardized...
investors service argued that:
- "The strengthening regional economy is supporting Latvian production and exports, while the sharp swing in the current account balance suggests that the country’s ‘internal devaluation’ is working."
See also
- Economy of LatviaEconomy of LatviaUntil the middle of 2008, Latvia had the fastest developing economy in Europe. In 2003, GDP growth was 7.5% and inflation was 2.9%. Unemployment was 9% in 2003 - 2005; however, in 2009 it rose to 23% and is the highest in the European Union. Privatization is mostly complete, except for some of...
- Global financial crisis of 2008–2009
- 2008–2009 Russian financial crisis2008–2009 Russian financial crisisThe 2008–2009 Russian financial crisis, part of the world Economic crisis of 2008, was a crisis in the Russian financial markets as well as an economic recession that was compounded by political fears after the war with Georgia and by the plummeting price of Urals heavy crude oil, which lost more...
- 2008–2011 Icelandic financial crisis
- List of bankrupt or acquired banks during the financial crisis of 2007–2008
External links
- Latvia Economy Watch
- Latvia’s Recession: The Cost of Adjustment With An “Internal Devaluation”, February 2010, report from the Center for Economic and Policy ResearchCenter for Economic and Policy ResearchThe Center for Economic and Policy Research is a progressive economic policy think-tank based in Washington, DC, founded in 1999. CEPR works on Social Security, the US housing bubble, developing country economies , and gaps in the social policy fabric of the US economy.According to its own...