IMF: Economic crisis will be deep in Eastern Europe ...

No comment. Reuters reported last night:

WASHINGTON, Jan 14 (Reuters) - The economic slowdown in Central and Eastern European countries will be deep, but the region will likely adjust quicker than many of the more established economies in Western Europe, the International Monetary Fund's new chief for Europe said on Wednesday.

"These countries have successfully reformed their institutions and most have built economies that are diverse and resilient," Marek Belka, director of the IMF's European Department, told the online publication IMF Survey.

"The crisis puts them at risk, but even if the slowdown in many of these economies will be deep, change comes naturally to this part of Europe," he added.

Since the onset of the global financial crisis, the IMF has provided rescue packages to Iceland as well as to Hungary, Latvia, Ukraine, Belarus.

Belka, who was Poland's Prime Minster from 2004-05, said the crisis was a wake-up call for Europe to strengthen financial cooperation and tackle long-term problems such as the fiscal burden of an aging population and improvements to productivity.

"My hope is that the policy discussions in Europe will not remain entirely focused on finding immediate solutions to the crisis but that some thought will be given to developing a longer term response," Belka said.

"It is not inconceivable that the crisis could generate political momentum in favor of deeper reforms that seem impossible in normal times," he added.

He said Latvia's decision to preserve its currency exchange rate peg was a condition of the authorities from the start of discussions on IMF financing.

"A potential devaluation of the lat probably would not have boosted exports, especially given the current state of the world economy," Belka said. "Latvia's economy is dominated by the financial sector and real estate, and here a devaluation would have caused a lot of problems."

He also pointed to the impact that a devaluation of the Latvian lat currency would have had on its Baltic neighbors.

"If the exchange rate of the lat had been changed, would the pegs of Estonia or Lithuania have remained credible?," Belka added.

In contrast, Iceland opted to maintain its flexible exchange rate. Belka said the choice of exchange rate depends on factors such as the size of the economy, the level of public and private debt, currency reserves and the country's institutions.

"For Iceland, all these factors seemed to argue in favor of a float," he said. "But above all, there is considerable uncertainty about the impact of the collapse of the banking system in Iceland, reflecting the unprecedented size of the collapsed banks relative to the rest of the economy."

"It was therefore essential to maintain maximum flexibility in policies going forward, not least with respect to exchange rate policy," he said.

Belka said the IMF as well as other global institutions failed to issue adequate warnings on the global financial meltdown.

"Even though the fund did issue warnings both with respect to the global economy and for individual countries, they either were not treated seriously enough or they were not spoken loudly enough," he said. "However, we were not alone in underestimating the unprecedented scale of this particular crisis."