Latvia rejects "Cyprus II" tag

By bne IntelliNews March 22, 2013

bne -

As Cyprus faces a race against time to save itself from bankruptcy, CEE peers are lining up to insist that they share no similarities with the Mediterranean island. Earlier this week, Slovenia - the likely next country to need a bailout - rejected any comparisons. On the other side of Europe, Latvia insisted on March 21 that it is not "Cyprus number two," and is not expecting a wave of Russian cash looking for a new home in the coming days.

The Baltic state and Eurozone aspirant is already home to sizeable deposits of cash from Russia and other CIS states, and has also starred recently in several dodgy schemes connected to public procurement in Ukraine, as bne has reported. The volume of those deposits has been growing in recent months as the state of the Cypriot banks has alarmed account holders, provoking fresh warnings to Riga from Brussels and others.

However, although the Cypriot banks are now facing meltdown, the Latvia's financial sector regulator FKTK claims it is not expecting an increase in flows.

Kristaps Zakulis says he sees no new rush of funds due to the troubles in Cyprus, which is home to Russian offshore funds estimated to total between €20bn and €40bn or so and is struggling to strike a deal for a Eurozone bailout. "There is no basis to expectations that a large flow of money from unknown sources will come in the next few days into the Latvian financial sector," he said in a statement, according to Reuters.

"In the same way, there is no truth in statements that Latvia could become Cyprus number two as the size of both countries' financial sectors and their significance to the economy are very different," Zakulis added. Financial services in Cyprus equal about 40% of the country's GDP, while Latvia's amount to just 3.0-3.5%, he pointed out.

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