Polish and Swedish officials appealed for swift action to help beleaguered Latvia today to prevent its economic crisis from spilling over into other countries in Europe, Reuters reported. The tiny Baltic state, facing a brutal economic contraction of up to 20 percent this year, is struggling to avoid a currency devaluation that would hammer heavily exposed Swedish banks and reignite worries over East Europe's prospects. However, a senior IMF official, some economists and ministers from two other countries which like Latvia peg their currencies to the euro all played down the fears of regional contagion, arguing that Riga's predicament was uniquely grim. Latvia's prime minister, Valdis Dombrovskis, reaffirmed that his government was not planning to devalue the lat. The issue of Latvia's currency peg was not raised in talks on Friday with the IMF and the EU, he said. "There is a threat that the situation in Latvia may spill over into the region," Dariusz Filar, a member of the Polish central bank's Monetary Policy Council, told reporters on the sidelines of an economic conference in Warsaw. "This situation is a challenge that requires a reaction on a broader scale than just Latvian, there is a need for more international assistance," he said, without giving details. Filar's comments knocked regional currencies. Poland's zloty and Hungary's forint traded down about 0.7 percent against the euro in late afternoon trade. The International Monetary Fund and European Commission say Latvia must make further deep spending cuts before receiving fresh loans. Negotiations with the lenders are now underway.
