Baltic, Bulgaria currency boards can withstand slowdown-IMF

David Martiste, Patrick Lannin
November 16, 2007

TALLINN, The Baltic states and Bulgaria should be able to survive an upcoming economic slowdown with their currency pegs in place, an International Monetary Fund official said on Friday.

Latvia, Lithuania, Estonia and Bulgaria are the only European Union members to operate currency board systems pegging their currencies.

Analysts have said the monetary inflexibility of these systems could hamper their efforts to fight inflation and other macroeconomic imbalances but the IMF was calm.
“We see the currency boards as fairly resilient,” said Juha Kahkonen, senior adivsor at the IMF’s European department.

“We see the most likely scenario as a soft landing. We see a good chance of a smooth landing for these countries,” he added at a news conference on the Fund’s European outlook report.

The Baltic states and Bulgaria have been plagued by high inflation and rising current account deficits during a period of strong economic growth which has been fuelled by cheap credit.

Estonia’s growth has already begun to slow and the Latvian central bank said on Thursday the peak of expansion was now past. Lithuania is continuing to expand. Bulgarian growth is expected to slow in the third quarter. (Reporting by David Mardiste, writing by Patrick Lannin)