Baltic economies facing tougher times

International Herald Tribune
May 26, 2008

RIGA, Latvia: If the pessimists are right, dark times lie ahead for the Baltic states of Latvia, Lithuania and Estonia as their economies slow sharply from double-digit growth rates.

For the optimists, however, these countries might simply be on the road to a more sustainable pace of development.

What is clear is that a slowdown, partly caused by Scandinavian lenders cutting back on the credit they have been doling out in large amounts, is making their efforts to join the euro zone an even greater challenge, especially at a time of high inflation.

All three countries, which have currency boards and currency pegs to the euro, hoped to adopt the single European currency soon after joining the European Union in 2004, but a resurgence of inflation has pushed back these plans to between 2010 and 2013 at the earliest.

In the meantime, governments must rein in spending and find new ways to generate growth in the absence of the huge consumer demand that was fed by the credit boom.