Some time passed since the last post in this blog. One might say – nothing happened in Latvia, despite all the effort of the author, and things are going well. Despite huge drops in real GDP, budget deficit, all those real estate and labor problems, or IMF’s bickering regrading credit – Latvia will eventually get out from the hole. God bless those people. But the Latvian government will not. Neither will the central bank.
Now i started to believe that Latvia’s problems emerge due to lack of reliable official information. Let me explain.
Firstly, on 2 of April the Bank of Latvia (BoL) decided that it would be most convenient for all not to disclose where and how much foreign FX reserves of the country are held. It seems of low importance, BoL says, and will protect the country against the speculative attacks of investors. Yes, right, speculators most probably will invade into the financial system, but primarily due to its shitty fundamentals. Show me somebody who cares about where saving are of Latvia are held? Unless they are distributed to the local banks! This subsequently leads to the second thought.
Check one revealing graph:
This is how Latvia’s FX reserve change in how they should have changed according to the officials. The BoL says they only sold EUR 155mn in March. However, comparably FX reserves dropped more than EUR 1bn. Where do money flow? Nobody knows, I won’t be surprised if Mr. Rimsevics also doesn’t know. But I can assume from the current environment that this money is transfered to troubling local banks. The BoL intervenes into the market not directly, but through those arrogant little institutions, I assume. In exchange of being speechless, the banks could be allowed to use some of the FX reserves to sustain liquidity and minimize panic… Ah right! This money could also be stolen or missed in accounting! This leads us to the third and final (oh thanks) point – accounting in Latvian.
Today the press mentioned that foreign creditors of Latvia decided to audit its budget financial performance. Funny and sad they discovered two things. One – the Latvian government does not have any centralized database of revenue collection, its simply doesn’t know from which sources the money is fulfilling the budget. Two – it doesn’t know how many people are currently working in the government and each ministry in general, thus, the government doesn’t know how it spends its money. But they certainly know that devaluation is not possible and fat Santa Claus will visit them in December. I don’t know how they are going to tackle the crisis – cutting somebodies’ heads?
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