The finance minister is confident Estonia would be independent enough economically if neighboring Latvia devalues their currency or defaults.
TALLINN — The Estonian Finance minister stated Wednesday that the Latvian economic woes south of the border will not affect Estonia’s future adding that they are more concerned with internal matters.
”In order for Latvia to keep their own currency, they must fulfill their promises. What is going on in our neighboring country, however, will not influence us at all,” Estonian Finance Minister Jürgen Ligi told the Dow Jones Newswires during an interview about the possibility of a devaluation of the lat.
“Latvians have to do what they promised. We believe that they can achieve their goals. However, what ever happens in Latvia won’t unleash anything in Estonia. The direct economic connections between Estonia and Latvia aren’t as big as it is believed,” Ligi said.
Ligi’s forecast isn’t supported by some local economists, who argue that the Latvian economy will affect Estonia significantly because of the interconnectedness of the three Baltic states’ economies.
“I think the Estonian economy is quite effected by what happens in Latvia — what happens in Lithuania, and Latvia is very important to our economy,” Ruta Arumäe, SEB Bank’s chief economist told Baltic Reports. “Even if Estonia has better finances and has had a better adjustment, as long as Estonia doesn’t have the euro, we are the still same Baltic region for foreign investors. The banking sector is the same for Baltic states, so if there are problems in Latvia, this will affect the whole region, then banks cant give loans.”
Arumäe said that Estonian businesses will be keeping a keen eye on the Latvians and their budgetary cuts.
“If Latvia defaults or devalues the lat, it will affect Estonia — it is a big export market for us. About 11 percent of exports go there,” she said. “We are very tied to each other through different channels – banking and investment. If Latvia devalued its currency, no one could force us to devalue, but it would make it very hard for many companies.”
The three Baltic states are now in the midst of their worst-ever economic crisis since independence from the U.S.S.R. Standard & Poor decreased Estonia’s rating from level A to level A- in summer with a negative outlook remaining.
Estonian lawmakers have taken the budget stability as their new priority, Ligi said.
“Keeping the public sector’s costs in order is our first priority but at this moment we don’t need to do much else regarding the budget,” he said.
