SSE.LT

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…

Evidence of international pressure is rising. It is much clear now Latvian government had hot debates with international community about currency devaluation. Promising much and doing little.  On that background EURLVL spot rate approached its upper legal limit:

EURLVL spot

Swedbank perpetual bond price fell 2.5%:

Swedbank perpetual bond price

Now Latvian government expects budget deficit around 8.5% next year, which compares with 7% arranged with IMF. Probably they feel too much self-confident they do not follow the arrangements, which raised logical questions on international finance arena. There is too much doubt at the moment in Latvian loyalty. The following paper fuels them even more by describing a legal removal of a major barrier for the Latvians to devalue their currency. In short, now there are chances of the law according to which people who took credit on real estate will not be liable for the amount of the loan that exceeds value (not sure which) of the real estate:

Source: Danske Bank

If this held true, devaluation will not increase cost of mortgage loans in Latvia. 2 years lasting argument of the central bank of Latvia might just become a joke.