Oct 22

IMF’s Report on Latvia

Posted by Kristjan Velbri | Posted in Europe | Posted on 22-10-2009

The IMF delegation has just put together an overview of Latvia, a recipient of IMF stabilization funds. The report can be reached here. I haven’t had the time to read the full report, which is 114 pages, but here are some of the more interesting paragraphs and charts. The overall theme of the report is very grim and having read the recent news out of Latvia, I would say that even as it stands, it is still an understatement. The situation become somewhat more clear if you take a look at Swedbank’s Q3 report and the speed of which the amount of impaired loans has been increasing in Latvia compared to neighboring Estonia and Lithuania. The share of impaired loans, gross, was 6.42 per cent in Estonia, 19.74 per cent in Latvia and 12.33 per cent in Lithuania. Here are the notes from the IMF report:

From page 4, introduction and summary
- Staff and the authorities project that GDP will fall 18 percent this year, with a slow recovery to take hold only in the second half of next year. Much of this output loss will be permanent, though the still-large negative output gap implies significant deflationary pressures for the next year or two.

- Public discontent is a concern. The coalition parties did poorly at the municipal and European elections on June 6, and lost control of Riga city council. The coalition also faces deep internal divisions. All coalition parties signed the Letter of Intent, notwithstanding earlier questions by some of them on the need for a Fund arrangement. Opposition to spending cuts has been subdued since January’s demonstrations, but could pick up during the winter when unemployment benefits run out for many, and the heating season begins.

Page 5:
- Retail sales fell 25 percent year-on-year in the first quarter of 2009, reflecting declines in household incomes and consumer confidence. Construction and consumer durables spending have fallen even faster (car sales down 80 percent in the first quarter), in part reflecting the credit crunch.

A few interesting charts:

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Jun 11

Reading Material, 11th June, Focus on Latvia

Posted by Kristjan Velbri | Posted in Europe | Posted on 11-06-2009

Lots of mixed news on Latvian devaluation.Danske Bank reports that the roots of Latvia’s devaluation panic are rather in Stockholm (BBN). Moody’s sees  Latvia avoiding devaluation (MarketWatch). Other news include:
The Devaluation Idea (WSJ)
Latvia proposes 40% income tax (Reuters)
Latvia Budget Cuts Get Union Backing Ahead of Parliament Debate (Bloomberg)
Latvia risks becoming first EU member to face economic meltdown (Telegraph)

Economist special:
Obama urges Congress to pass new PAYGO plan
Military spending UP!

The biggest bill in history

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Jun 03

Update on Latvia: Devaluation Highly Likely

Posted by Kristjan Velbri | Posted in Europe | Posted on 03-06-2009

MORE RED FLAGS!

Latvia Fails in Treasury Bill Auction, Gets No Bids <-> RIGIBOR at 16.4%!

Latvia’s Chance of Devaluing Lat Seen at 30% in 3 Months by ING
I really don’t know how they got these numbers, I’d sure like to see the report. The numbers seem and feel kinda right, but still, no pic no proof!

Latvian Property Market Was World’s Worst in First Quarter

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Jun 02

Devaluation Imminent in Latvia?

Posted by Kristjan Velbri | Posted in Europe, Finance | Posted on 02-06-2009

EDIT: The author of the article was not Edward Hugh, but Claus Vistesen. Sorry for the mistake.
Claus Vistesen reports on the Latvian situation:
As a consequence of this and, arguably, a host of other things Bengt Dennis, a former Swedish central bank governor and an adviser to the Latvian government was quoted this weekend of saying that a Latvian devaluation is a done deal. The only question would be when and how.

Bengt Dennis, the former Swedish central bank governor and an adviser to the Latvian government on how to cope with the economic crisis, said the Baltic country will need to devalue its currency. “No one knows if there will be a devaluation tomorrow or in a few months — the timeframe is always uncertain — but we have moved beyond the question of whether there will be a devaluation and should instead focus on how it will be carried out,” Dennis told Swedish state television SVT last nigh….
The rest of the story can be found here and here (both links take you to the same story, the difference is the first link takes you to Mr. Hugh’s Eastern Europe blog and the second one to the Baltic blog).

Edward and Claus are one of the few foreigners who keep a keen eye on the Baltics. They is also the only one I know of to draw attention to Latvia’s problems as far back as 2007! If you’re interested in the recent developments in Latvia, I suggest you read Edward’s previous posts:
Danske Bank Warn On The Baltics
Payment By “Voucher” In Latvia?

In addition to that, he has blogs about the economies of Argentina, the Eurozone and more. The links to these can be found on his website, on the right sidebar. Finally, I leave you with this, what looks like to be Lithuania’s finance minister (from Lithuanian: What I see here? hmmm.hmmm. difficult question, doctor. maybe this is the devaluation of the litas?  [litas being the currency, of course])

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