Friday, March 27, 2009

Clinical death, devaluation rumors and stimulus

Latvia's Minister of Economics Artis Kampars (New Era/Jaunais Laiks/JL) has declared the Latvian economy clinically dead in a newspaper interview.
The new minister said that the present government under Prime Minister Valdis Dombrovskis (also JL) could not be blamed for the situation it inherited.
I have written previously that Dombrovskis is very clearly a "fall guy". By his remarks, Kampars has confirmed that the economy has collapsed/will continue to collapse on his watch. It doesn't mitigate things to say that JL warned of the impending economic crisis. The party decided to take the wheel of the state when it was well beyond any braking distance from the edge of the cliff.
Meanwhile, the PM has stirred new devaluation rumors by saying that the international lenders were divided on whether Latvia's strong lat should be decoupled from the euro. He said that the International Monetary Fund (IMF) didn't object to devaluation, but accepted that Latvia didn't intend to devalue. Meanwhile Dombrovskis indicated that the European Union (EU), also a major lender, didn't think devaluation was a good idea.
Bank of Latvia President Ilmārs Rimšēvics has urged the government to stimulate the economy. One wonders with what? Kampars said that while bureaucratic procedures to use EU and government money for improving the insulation of residences would take a long while, he expected some activity in this area in the summer (before funds are available?). Well, we will see who is running around with rolls of insulating material in June...
Rimšēvics also thinks that Latvia will be eligible to join the euro zone in 2012. It might just meet some of the inflation criteria (but don't count on it), but certainly not the national debt requirements. Think 2020 if we are lucky.
I say: worst case scenario devaluation by June (fuck you very much, Latvian Security Police), 20% unemployment soon, massive labor emigration by spring 2010 if Europe starts turning around. The first to go to well-paid cleaning jobs will be Latvia's teachers. Watch for a collapse of the education system in 2010 and 2011 as opportunities appear to GTFOFL*.

*get the fuck out of Latvia, what did you think?

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