We now know that transactions with financial institutions and markets which, prior to the crisis, were perceived as being virtually risk free can actually carry very significant counterparty and credit risk, as well as liquidity risk. One other development which has implications for reserve management bears noting.
Last year its GDP grew by 3.3%, whereas the euro area’s GDP shrank by 0.4%. Quite remarkably, Lithuania managed to reboot its economy without any external support. The Baltic countries have demonstrated that adjustment is possible – even without currency devaluation. While Lithuania’s government deficit stood at 9.4% in 2009, last year it had fallen to 2.1% and is expected to decline further.