In addition to the document, it is understood that the Latvian State Treasury (Valsts Kase) has already drawn up a schedule of debt auctions and target yields.
With less than three months remaining in 2009, it appears that there will be frequent, high volume sales of treasury bills or other debt instruments, perhaps on a weekly basis, for the rest of the year.
The large volume of borrowing in a poor country of 2.2 million is likely to drain all liquidity from the money market unless foreign bank subsidiaries or other foreign investors come in as "domestic" bidders in the auctions.
It is likely that such heavy government borrowing will effectively squeeze out Latvian small businesses and private borrowers who are already complaining about banks being reluctant to lend. In addition, the squeeze is likely to boost domestic interest rates even further.
Since the largest Latvian financial institutions are Swedish owned, participation by Swedish subsidiary banks would increase the Swedish financial sector's already high and precarious exposure in Latvia and the other Baltic states. Although state debt is generally rated as very secure, there is an inevitable linkage between the huge Swedish exposure in mortgage and private lending and state finances. Large-scale defaults and renewed pressure on the Latvian currency could, in the future, lead to stop-loss selling of Latvian treasury bills.
The failure of a modest-sized treasury bill sale earlier this year led to turbulence on Scandinavian stockmarkets and intervention by the Bank of Latvia to support the lat.
The LVL 400 million domestic borrowing target also raises questions about the true size of Latvia's budget deficit, which was supposed to have been covered by loans from the European Union and the International Monetary Fund (IMF).
The confidential document also indicates that Latvia must work to restructure its existing debt stock to increase maturities and reduce the risk of rollover (in simple terms, borrowing from Peter to pay off Paul, then hitting up Paul again when Peter has to be paid back).
The document, which found its way to the Latvian news agency, is apparently very sensitive, with Finance Minister Einars Repše interrupting remarks by a member of the Latvian parliament, the Saeima, warning the man that he was about to disclose state secrets. The parliamentarian referred to provisions in the confidential document that "would be of great interest to financial speculators."