Foto: Anete Skuja, F64
The benefits Latvia has from internal devaluation
One of the major differences between an external devaluation and an internal devaluation is the impact on incomes. An external devaluation of, say, 20% keeps incomes constant measured in LVL but reduce them by 20% measured in EUR. Equal treatment, so to say, which does not prevail in an internal devaluation where different LVL incomes are reduced differently based on where one is employed. In Latvia, public sector wages were reduced substantially (25-30%) while hearsay speaks of some private sector wages reduced by 50% or more while others by much, much less.
One group that benefited from the internal devaluation in this respect, though it does not seem to receive that much attention, was pensioners, partly, as we know, due to the Constitutional Court calling it unconstitutional to cut pensions (or something like that; I am not a lawyer...) and because of the agreement with international lenders (IMF, EU, World Bank etc) that, among so many other things mostly spoken of, also aims at safeguarding vulnerable groups - and, yes it does, it is not just a question of cut, cut, cut to make Latvian government expenditure (finally) start matching revenue.
