Adomas Navickas

The IMF/EU Commission Rift on Latvia Seems to Be Deepening

Producer prices down 4.8% yoy in May.
Public sector wages still 15% higher than private sector ones. this is one of the culprits.

But Jurmala looks lovely and full of locals and visitors (even Japanese tourists are back).

Are the IMF and ECB Lining Up Against the EU Commission over Latvia?

Is there money involved behind all these writings :-)
somebody's short positions are costing a fortune and they are using every possibility to break the peg.
While i studied macro from Prof Rogoff's papers, i think his picture of the Latvian situation is as good as mine understanding of Honduras' coup.
credibility will be restored with increase in reserves from the EU support package and continued reduction in public and private sector wages.

Latvia: Devalue Now or Later?

What do countries do with exorbitant profits on economic activity - tax them. While Latvia did not benefit from the "somewhere out there in the Baltic sea" oil discovery or sudden interest in its amber, its steroid was Swedish intermediated money. Then, let's tax it. At 2% special tax on total bank assets for end of April 09, that would make over 600mEUR in tax receipts, enough to cover the budget deficit so far (and more importantly, as capital ratios will fall below the minimum, forcing the, mainly Swedish banks, to come up with additional capital). Nice. But seriously.

Is this the pioneering time for internal devaluation? It is not. Look back at 1999 when after the 1998 rouble devaluation, Baltics were hit with a devastating terms of trade shock (just as unprepared as now with central banks prefering to mint nice coins - another one coming up to my collection soon - courtesy of the Bank of Latvia). Admiteddly, the shock was smaller then.

Stimulatory fiscal tightening. oh yeah baby yeah. The public servants accelerated the Swedish mess. They need to cut the workforce and wages. Same for the private sector. The reference point is not 2008 or 2007, 2006 maybe. It was not growth, it was an illusion, while decline is painful, remember the "correct" reference base (we're still much better off). This is the only way to return competitiveness - through hard work and rational pay.

Lat should be defended. Enough of broken promises in our lands. If Europe does not provide the next tranche, then the European dream for the Balts will be over (with corresponding voting in the next parliamentary election in 2010). Left alone again.

I am sure this will not happen, though i did tumble a bit when the Swedish PM's adviser in a "merry mood", maybe, noted that devaluation is inevitable. I am still sticking to lats and i believe that Latvia will feature in the next edition of Prof Krugman's textbook as a showcase of Nordic toughness never to be repeated by Southerners, though.