2008.12.1609:56:00UTC+00Sweden and Denmark to bail out Latvian Central Bank

The Swedish and Danish central banks have agreed to join hands to help the Latvian central bank, the Swedish Riksbank said Tuesday. The two Nordic central banks planned to enter into a swap agreement under which Latvia would be able to borrow EUR 500 million in exchange for Latvian lats. "It is important that central banks cooperate and assist each other in times of financial crisis," Stefan Ingves, the Governor of the Riksbank said.

The agreement provides Latvia with short-term funding to help preserve its financial and macroeconomic stability. The funds would be available on tap to Latvijas Banka as and when the need arises. The Riksbank was set to provide EUR 375 million in funding. There was a risk that the financial crisis in Latvia could spread and create unease in the Swedish financial markets, Stefan Ingves said. "It is therefore in the Riksbank's interest to help to avoid such a situation by entering into a swap agreement with the central bank of Latvia," the Riksbank Governor observed.

In the run up to obtaining financial assistance from the IMF, the Latvian parliament had decided on a number of measures to address the economic problems faced by the Baltic country. These measures were a precondition for sanction of assistance by the IMF and the money provided by Sweden and Denmark would provide Latvia with financial stability, pending the final approval of the IMF program.

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