Central and Eastern Europe to be careful with debt in foreign currency

Stefan Uagstil, London

Central and Eastern Europe should be rid of „his addiction to debt in foreign currency, such as improving macroeconomic management, develop markets for local currency and tightened the regulation, said the European Bank for Reconstruction and Development (EBRD) in a sharp report, published in monday.
In its review of the impact of global financial crisis, the bank said that international financial integration in general is good for Central and Eastern Europe since the credit and capital imports, mainly from Western Europe.
But financial integration has inflicted „significant losses“ through „the promotion of credit and bumove svrahzaemaneto and influenced the loans denominated in foreign currencies.
Attempts to address the pace of financial integration would be the wrong policy, but coupled with its workers are facing „vital need“ to control its future development. According to the EBRD, they must counter the tendency to borrow in foreign currency, which „could continue jeopardizing stability.“ They should develop tools to reduce future credit bumove and improve management of the results of such bumove.
The report was published after months of doubt the role of foreign banks in Central and Eastern Europe and especially in Central Europe, Baltics and the Balkans, where banking is dominated by western companies. When the financial crisis hit last year after the collapse of U.S. investment bank Lehman Brothers, there was concern that international banks may leave the region to focus on activities at the local level.
With the help of the European Union, International Monetary Fund and other international financial institutions and the danger was prevented banks were reluctant to cooperate, including in vulnerable countries such as Latvia, Hungary and Ukraine received a large rescue packages from the EU and IMF.
But when things utalozhiha, coupled with policy makers question whether the mere exposure of foreign banks into the region (which is unusually high among developing economies) has not contributed to the crisis.
The report of the EBRD says that the benefits are greater than losses. The bank’s chief economist Erik Berglof explained: „The fundamental model of growth for the region remains intact. But the crisis highlighted weaknesses. There is a lot to learn. “

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