Latvia is poised to devalue its currency at least 15 percent by the end of 2010 to boost exports and cut the budget gap as the economy contracts at the fastest pace in more than a decade… deficit may grow to a record 10 percent of the economy this year, twice the initial 5 percent target set last year by international agencies that provided a 7.5 billion- euro ($11.2 billion) bailout loan. Latvia may already have taken the first step toward devaluation after an announcement on Oct. 6 that the government was considering rules to cap mortgage holders’ liability, which would help limit losses from a devaluation.
More and more scary bells each week are coming from Latvia. After the announcement the yield on sovereign bond due 2018 rose almost 1 percentage points, CDS jumped >20%. In last two weeks Latvian central bank had zero net intervention in FX market. Would be ridiculous for Mr. Rimsevics to spend another billion euros on defending currency. Probably he will not. Creditors would be flamed out otherwise.
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Ober-Haus Real Estate Advisors is presenting the Lithuanian apartment price index (OHBI), which shows summarized changes in prices for apartments in the five largest Lithuanian cities (Vilnius, Kaunas, Klaipėda, Šiauliai, and Panevėžys).
In September Lithuanian real estate prices declined 1.8% m/m and 30.3% y/y. Record setting continues. This September was the worst ever for the real estate in Lithuania.
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Finance Minister Anders Borg has had talks with the major Swedish banks and warned of a near economic collapse in Latvia… The international community’s patience is very limited… In secret talks with the Swedish banks have Anders Borg explained the growing pressure that exists within the International Monetary Fund (IMF) to force Latvia to a devaluation… Since it is difficult to safely assess Latvia’s ability to pay and with conditions for recovery, one cannot completely exclude the risk of a major default.
According to translated version of SVD.SE, whatever that could mean. Anyway, one of the major barriers of devaluation could be removed by the Latvian government…
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Latvia will probably devalue its currency in the next year since the government may not be able to continue cutting spending in line with its international program… We think it’s more likely than not that Latvia will devalue… [Real effective exchange rate] needs to decline by “about” 25 percent to return to levels in 2004 “when the bubble started to inflate,” Shearing said. The real effective exchange rate has weakened 3.5 percent from its peak. A Latvian devaluation will mean Estonia and Lithuania are likely to follow suit and devalue their currencies…
That’s what Bloomberg released today. Quite a strong message from Capital Economics. Will it raise the next economy run?
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Lithuania’s central bank said on Wednesday it had ordered the country’s sixth-largest bank, Snoras, to raise capital and imposed limits on its risk-taking… Snoras had to shore up capital to cushion risks, mainly from operations with non-residents, but the bank was stable… A Snoras bank spokesman said the bank’s capital adequacy ratio was 8.42 percent at the end of the second quarter, compared to the minimum requirement of 8.0 percent.
Oops. 8.42 means should the bank’s equity decline 5%, it will brake the minimum requirement. In the last 12 month Snoras lost 9.32mn litas or 1.6% of equity. More to follow.
Lithuania will sell euro- denominated bonds in less than a month in a second auction this year. The government targets reducing the budget deficit next year and will cut spending and raise taxes by a total of 4.2 billion litai to narrow the gap, Kubilius said today.
4.2bn litas is ~11% of 2008 government revenue or 3.7% of 2008 GDP. If government expenditure multiplier is 1 than GDP of the country will contract 3.7% only from lower public spending. In fact, the decline can be as much as 7% or 10%, as more money is saved in recession than it is spend. And this excludes firms and households consumption.
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Lithuania… had its foreign and local- currency debt ratings cut by Moody’s, which cited “severe pressure” on the budget… a reversal of this trend [recession] is unlikely to occur within the medium-term rating horizon… Subdued growth in western Europe will lead to diminished demand for Lithuania’s exports and less foreign investment… Domestic consumption is also likely to be limited by falling employment, wage cuts, a weakened banking sector and government budget consolidation.
A quite unexpected step from the Moody’s, reminding for all those “bottom searchers” where the country is heading. Additionally, statistic department reported consumer confidence index of -40, compared to -47 in August and -26 a year ago.
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The surplus will increase because “the goods and services deficit shrank, as well as due to losses of foreign companies and the intake of European Union funds for agriculture,” Rimsevics said today in a statement.The bank will officially
release the data on Sept. 23.
Many thanks are going to Mr. Rimsevics for creating transparency in Latvian accounting. Now we see more of what we would like to see from a country with doubtful currency peg and weak fundamentals. That’s foreign companies’ losses and EU funds that drive rising CA. The question “how sustainable it is” persists.
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New York state made claim for $1.2 billion in taxes, interest and penalties from Lehman Brothers Holdings Inc. The state is seeking payment for tax bills dating to 1994, according to the claim form.
Bad luck. Would the head reached out Lehman as they did Goldman, they would have been received at least $1.2bn. Goldman Sachs paid $568m in taxes during the last 13 months. However, it obtained $13bn via AIG and $10bn from the government to keep going, making Goldman’s tax paid equal to 2.5% of the total sum. Not the best return on investment. Efficiency, efficiency, efficiency…
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State debt may exceed 60 percent of gross domestic product in 2011, Rimsevics said. The debt ratio may fall below 60 percent the following year in time for meeting criteria to adopt the euro in 2014, he said. State debt was below 10 percent of GDP in 2007.
Dear Mr. Rimsevics, I am decently asking how could it be you have mixed up this statement with previous credo about Debt/GDP ratio (<60%). Please let me know where my interpretations are wrong when I compare the above words with this interview.
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Original memorandum of intent of the government differed from what had been published. Two issues from the published document had indeed been removed at request of the Bank of Latvia and the Treasury. One is related to some information that can put investors into more advantageous position relative to the Treasury in sale of government debt. Another was able to create more benefit for speculative attacks on Latvian Lat. One particular number could harm the whole country interest.
That’s how Wednesday’s Latvian press described the deal between Latvia and IMF.
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Ober-Haus Real Estate Advisors is presenting the Lithuanian apartment price index (OHBI), which shows summarized changes in prices for apartments in the five largest Lithuanian cities (Vilnius, Kaunas, Klaipėda, Šiauliai, and Panevėžys).
In August nominal price index fell 3.3% m/m and 30% y/y, which is 13th consecutive y/y decline and even worse than July’s maximum. It is the first time since 2003, when August prices declined m/m, which significantly disappointed market expectations. So where is the bottom?
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Over 80% of the world’s corporate and government data resides on mainframes. Over $5 trillion worth of corporate application and data assets rely on its mainframes today. Almost 95% of Fortune 1000 companies use its Information Management System (IMS) for their most critical data management needs. More than 50 billion transactions—including financial ATM sessions, healthcare record access, tax accounts and other critical information—are running through IMS databases on a daily basis.
All these statements refer to IBM – worldwide data manager with an absolute market power. Most essential global information is directly or indirectly controlled by IBM. Summary of the Computer & Communications Industry Association’s report follows.
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Goldman Sachs Group Inc. and Morgan Stanley got it wrong in declaring the start of an economic recovery… record government spending may be forestalling another slowdown and market selloff… This is more likely a ski-jump recession, with short-term stimulus creating a bump that will ultimately lead to a more precipitous decline later
Nice move performed by Paul Tudor Jones of Jones’s Tudor Investment Corp, leading Macro hedge fund. This is one of few cases when official projections are tackled by a sophisticated investor with no direct relationship with the government.
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Bulgaria’s economy will fail to grow until 2011, lagging behind other European Union states, where most of the Balkan nation’s exports are shipped… Real estate, construction and financial services, which drove growth before the crisis, won’t be able to recover to pre-crisis levels… Recovery will have to be export driven
But what can Latvia offer? Or Lithuania with Estonia? We already now expect fast recovery in 2010. But Baltic case is much more complicated than Bulgarian. There are several short but explicit reasons.
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Both China and America are addressing bubbles by creating more bubbles and we’re just taking advantage of that. So we can’t lose… Lou said CIC was building a broad investment portfolio that includes products designed to generate both alpha and beta; to hedge against both inflation and deflation; and to provide guaranteed returns in the event of a new crisis
Now they say about that openly. Lou Jiwei, the head of Chinese sovereign wealth fund, admits the only way to defeat financial crisis is to produce another bubble economy. Controlled by few people, who serve as a monopoly, with no competition or control.
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Today Lithuanian Central Bank reported first ever year-on-year drop in residents wages. Gross wage declined 2.9% in the second quarter of 2009. Compared to the first quarter average wage rate declined 1%, average number of employees fell 4.1%. Thus, real corporate spending on wages contracted 5.1% in the quarter.
Employees in financial, mining and construction sectors experienced steepest declines in salaries. Wages in the sectors declined 4.9%, 10.6% and 22.4% respectively. On the opposite, teachers earned 12.9% more in 2q 2009 than during the same period a year ago.
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Little understood outside the securities industry, the business [high frequency trading] has suddenly become one of the most competitive and controversial on Wall Street… The profits have led to a gold rush, with hedge funds and investment banks dangling million-dollar salaries at software engineers. In one lawsuit, the Citadel Investment Group, a $12 billion hedge fund, revealed that it had paid tens of millions to two top programmers in the last seven years.
Now your investment fund value, or profit if your are Goldman Sachs, depends on how quick you are able to frontrun the market and protect the philosopher’s stone.
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On Friday, Lithuanian statistics department updated figures on domestic industrial production and transport enterprises activity – the numbers that are less adjustable by interested parties, unlike GDP or sentiment indicators. So, industrial production declined 16% in July compared to the last year, slightly better than last month’s figure, driven by the same size decline in manufacturing. Total goods transportation load reduced by 17%, passengers – by 21% . The numbers compare to the worst 33% and 22% respective falls this year. Despite lower deterioration rate can be interpreted as a “green shoot”, declines are still double digit, while improvements are caused by one-time events or statistical characteristics.
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… Current account has been balanced, inflation is falling back, foreign debt will not exceed 60% of GDP, which is a Maastricht criteria level… Our current account deficit is not in double digits… This is not because the overvalued currency, but because of huge lending… We just need to have more communication…
Latvian year to date trade deficit is LVL -145mn including both goods and services. Its income balance (the rest part of current account) was LVL -300mn in 2008, and the last time it was positive in 2002. But mysteriously, income deficit reversed to a surplus this year! How? Why? What affects? Mr. Rimsevics, can you please communicate on this topic?
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It is easy to participate. You only need to select one of six cells on a lottery ticket to find how much additional interest will be assigned to your deposit. The lucky number will be added to your specific saving account.
Voila! Lithuanian banks have officially started playing games. If you have lost money in one of Danske funds you can try your luck with their new entertainment. At least you will be able to experience some honored pleasure now if you didn’t try their magic deposit two years before. So what are you offered?
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Ober-Haus Real Estate Advisors is presenting the Lithuanian apartment price index (OHBI), which shows summarized changes in prices for apartments in the five largest Lithuanian cities (Vilnius, Kaunas, Klaipėda, Šiauliai, and Panevėžys).
In July nominal price index fell 0.9% m/m and 28% y/y, which is 12th consecutive y/y decline and the largest ever. Monthly deterioration rate reduced in line with historical trend. During the second quarter of 2009, apartment prices fell 26.5%, slightly more than 22.4% decline in GDP. Too bad, the bottom is not here yet.
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Two of the three Baltic nations saw their economies decline at a slower pace in the second quarter, increasing tentative hopes that the worst may be over in the crisis-hit region… The improving quarter-on-quarter trend bolstered the argument of those who believe the Baltic economies have bottomed out after suffering the deepest recessions in the European Union this year.
Black is white. Baltic States are not so big to moderate their GDP or unemployment figures significantly, unlike the US. Their only tool is to present real numbers in mystery interpretations. Just note what is the current macro environment in the countries:
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Imagine Vilnius, the capital of Lithuania, with 546 733 inhabitants, and only 50 new apartments sold in July. 50 – like one bottle of wine per day in the city’s most popular restaurant. Balsas.lt author suspects seasonalities.
However, in my opinion this factor is scrubby. There’s a winter season approaching, and many people already now start thinking how to maintain debts and public utility bills, new electricity prices and so on. Many apartments waiting to be sold now will become a true load for real estate brokers in winter and as a consequence of winterizing (and many other factors) prices is likely to be falling.
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S&P said it was cutting Latvia’s sovereign rating a notch deeper into junk status from BB+ to BB, citing the “political and economic challenges” facing the country as a result of “rapidly contracting” incomes and the associated pressure on public finances.
Latvia posted real GDP contraction of 19.6% in the second quarter of 2009. That’s the deepest fall in the country’s history. Meanwhile, foreign government debt increased to LVL 3.2bn (EUR 4.6bn). As a result, gross government domestic debt to GDP is set around 20%. To fulfill Maastricht criteria, the ratio can not break 60%. However, it’s not easy any more.
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From now on and in future, the blog shall provide comments and opinions on irrational market behavior and various forms of inefficiency. Either it is Latvian Lat, market manipulation, global conspiracy or other fake and intolerable things.
If we buy fake shoes we don’t post it here, but those dark “economicish” cases die in desire to be posted in this blog.
If you agree or disagree, you can do something, or you can do nothing! Have a good reading!
Latvia has received 7% of its trailing 12 months GDP in IMF aid package, totaling $2.35bn. This is one of the tiniest tranches offered to struggling Eastern European countries and Iceland in nominal terms. Nevertheless, compared to FX reserves, Latvia is the third largest European debtor. And the first largest which kept it peg unchanged. In total, $10.8bn tranche was planned.
Apart from other things, that could mean Latvia is the sort of country, receiving external financial aid, which is most vulnerable to hot money outflows, followed by Bosnia. Historically, these countries couldn’t manage to increase their reserves in line with GDP expansion as a result of speculative money transferring and excessive credit growth. They simply are not able to cover all external obligations with current FX rate, since the money didn’t pass through the central banks. To partly offset loose policy of Latvia and reduce investors’ concerns, FX reserves of the country will grow by 63% thanks to IMF donations.
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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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