STOCKHOLM/RIGA – In a move the government says could help prop its own currency, Sweden plans to lend Latvia 10 billion kronor ($1.1 billion) next year, more than any Nordic country, as part of a bailout led by the International Monetary Fund.
“Sweden will take the main part of the responsibility,” for the loans to Latvia, said Bo Lundgren, the head of Sweden’s National Debt Office.
Swedish banks have claims in Latvia, Lithuania and Estonia worth about $75 billion, according to ING Groep NV of Holland. Latvia is in the grips of the severest economic crisis since it regained independence from the Soviet Union in 1991. The country pegs its currency to the euro, forcing companies to push through wage cuts that are crippling households as businesses struggle to remain competitive.
Latvia turned to a group led by the IMF for a 7.5 billion euro ($9.4 billion) bailout last quarter after losses at its second biggest bank forced a state takeover. The economy slumped 10.5 percent in the fourth quarter, the most since the statistics agency started collecting data in 1995.
Three of Sweden’s banks account for 53 percent of the Baltic state’s lending market. Latvia’s bailout accounts for 34 percent of gross domestic product, with the bulk of the support coming from the IMF, European Commission and Nordic states, which together will provide about 6.6 billion euros. Nordic states will lend about 1.8 billion euros. Finland has said it is lending Latvia 324 million euros.
The remainder of the bailout money will come from the European Bank for Reconstruction and Development, the World Bank, Poland, Estonia and the Czech Republic.
Economic turmoil in the Baltic region is putting excessive pressure on Sweden’s currency, the krona, Lundgren said at today’s meeting with journalists.