Why the IMF Supports the Latvian Currency Peg

My co-RGE blogger Edward Hughsome days ago wrote a compelling piece on why the IMF’s decision to agree a Latvian bailout program without devaluation was a mistake. He doesn’t mince words: Sticking to the present currency peg, Edward maintains,  constitutes “virtually the unjustifiable” according to “the implicit consensus among thinking economists.”

What Drives FX Borrowing in Eastern Europe?

15 percent of outstanding private sector credit in Eastern Europe is now denominated in (or indexed to) foreign currencies—compared with only four percent a decade ago. The private non-financial sector, in particular, is increasingly exposed to currency risk, raising alarm among those who are concerned with financial stability. Moreover, Euroization has accelerated in the years […]

The Baltics–Avoiding the Portuguese Trap

On January 31, Fitch followed its earlier move on Lithuania and downgraded the outlook for Estonia and Latvia, citing “heightened downside risks.” Is the Baltic party, with per capita incomes surging by up to 50 percent since EU accession alone, finally coming to and end? Now that cheap financing is drying up in the wake […]

Let’s Not Take our Eyes off Fiscal Policy in Eastern Europe

Much has been written about external imbalances, currency mismatches and credit growth in Eastern Europe. This is the dog that didn’t bite during the recent market turmoil. Maybe the markets chose to ignore these vulnerabilities because the news from the fiscal front, long considered the Achilles heel of the region, are so good. Are they […]