DI: devaluation of the lat more likely
28.05.2009, 11:14A devaluation of the Latvian lats seems
more and more necessary, writes today's Dagens Industri.
Swedish central bank has already decided to borrow currency for SEK 100
billion in case Swedish banks need more money, and the share prices of SEB and
Swedbank keep falling.
"The alternative to devaluation in Latvia woudl be to wait until currency
reserves are exhausted and the economy is in a black hole. This would not be
reasonable," said Torbjörn Becker from Stockholm School of Economics.
DI also wrote that there are rumours that Latvian central bank has been
discussing possible devaluation. The source of the rumours was claimed to be an
anonymous official of the Latvian ministry of finance.
"This is worrying. Central bank has must better information about what is
happening on the Baltic market than most other market payers. This move will be
interpreted as a preparation for something," said one trader.
DI wrote that if Latvia devalues, also Estonia and Lithuania must follow
since otherwise they would not be as competitive as Latvia.
DI analyst Gunnar Örn writes that Latvian economy is so small that Sweden
could easily support it with currency injections, but the question is whether
there is sufficient political will. To avoid devalution, Latvia urgently needs a
currency injection. The Swedish government seems to be prepared to give such
aid, but the question will not be made by the Swedes, but by IMF.
IMF that has promised to lend Latvia 7.5 billion euros has suspended the
payment of one tranch since Latvia's budget deficit is above the agreed limit.
If Latvian parliament fails to approve a new budget cut in mid-June, Latvia
could lose hope to see 1.7 billion euros earmarked to it.