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In video communication over lossy packet networks (e.g., the Internet), packet loss errors can severely damage the transmitted video. The damaged video can largely be repaired with passive error concealment, where neighboring information is used to estimate missing information. We address the problem of passive error concealment for wavelet coded data with dispersive packetization. The reported techniques of this kind have many problems and usually fail in the reconstruction of high-frequency content. This paper presents a novel locally adaptive error concealment method for subband coded I-frames based on an inhomogeneous Gaussian Markov random field model. We estimate the parameters of this model from a local context of each lost coefficient, and we interpolate the lost coefficients accordingly. The results demonstrate a significant improvement over the reported related methods both in terms of objective performance measures and visually. The biggest improvement of the proposed method compared to the state-of-the-art in the field is the correct reconstruction of high-frequency information such as textures and edges.