Don’t change a winning formula!
It will come as no surprise to readers of this blog that I strongly support the agreement with the IMF and EU. Why? Because it works! And because I see no other viable and credible alternative.
Here is just some of the recent evidence showing that it does indeed work (source: Bloomberg).
1. Latvia was on 1 September able to sell 12 mill. LVL of five-year bonds at an interest rate of just 5.691%, indicating regained credibility from financial markets.
2. RIGIBOR, the interbank rate, has fallen below 3% for the first time since 2005. Remember the almost 30% of June 2009? Seems ages ago now.
3. On 3 September FITCH, one of the rating agencies, changed its outlook on Latvia to ‘stable’ from ‘negative’ due to increased belief in the viability of economic stabilization.
4. The much-feared contagion effects were avoided, just check the praise from Lithuanian Prime Minister (24 September) Andrius Kubilius: “Latvia’s austerity measures during the peak of the financial crisis “saved” its Baltic neighbours”.
Tamper with the programme and it is back to quotes like the following (here just a few; there were tonnes of them):
“Latvia may devalue its currency any time as it just can’t afford to cut its budget further”. Nigel Rendell of RBC, 21 October 2009.
“At this point, a currency and financial crisis is pretty much unavoidable”. Nouriel Roubini (i.e. Dr. Doom himself) in the Financial Times, 10 June 2009.
Anyone in for a rerun of 2009? If not, stay the course. It’s as simple as that!
Head of Economics Department
Stockholm School of Economics in Riga