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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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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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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Encouraged by a message from Bank of America with precise projection of Baltics devaluation I have decided to summarize why the analysts could be right in their estimations. Apart from inflation, economic recession and credit crunch, as stated by the BoA, I would like to stress other interrelated macro economic phenomena, which theoretically should be ended by a change in currency rates. Mainly, these are:
1. Hot money effect
2. Current account deficit
3. Reserves/ M2 + Gross external debt coverage
4. Low competitiveness
5. Parex Bank… and international relations
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Swedbank and Latvia are major friends today. If you listen to someone speaking about Latvia just wait a few moments and you will enjoy expressions about Swedbank. Or other way, if someone is articulating about Swedbank, she will certainly stick few words about Latvia. Causality is uncertain but base is obvious: Swedbank and Latvia are major problems of each other. Latvian currency is losing value, Swedbank – confidence.
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Does corporate governance matter? Here, in Baltics? Particularly, do listed companies of Estonia, Latvia and Lithuania can increase their share prices through better corporate information disclosure practices? These questions were raised last spring in Stockholm School of Economics in Riga with help of Riga Stock Exchange by my partner Inga Zarecka, currently a student of Heriot-Watt University of Edinburgh, and me in Bachelor thesis writing process. Our intention was to evaluate numerically the effect of corporate governance on stock returns of listed companies in Baltic States.
Apart from identification of general links between information disclosure and corporations valuation, one can find stated questions especially interesting under current poor economic environment of the region. Good knowledge about companies is the first step to attract foreign capital to the countries, which is so required today for Baltic economies. But results we have found during the study process are not very promising. As could be expected more transparent companies might gain benefit which is greater than costs of preparing report which is expressed in excess stock returns. However, the opposite effect was observed in empirical analysis of the paper. The group of companies with poor reporting standards significantly outperform the companies with high quality corporate information disclosure.
Research Question
We were interested whether the companies of Baltic stock exchanges gain an extra advantage in their share price values through “best practice” reporting. In order to answer this question the authors investigated whether investors earn positive returns on a long “high information disclosure level” portfolio and a short “low information disclosure” portfolio.
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Panic has started.
Discussed by John Hempton in Bronte Capital, Baltic banks are insolvent. The reasoning is the following:
Well if the Lati devalues (as would seem inevitable) then Hansa Bank has to pay Euro to Swedbank – and as its assets are in Lati it would be insolvent.
If the Lati doesn’t devalue its only because people (ie Swedbank) are prepared to continue to fund it. This is not pretty at all. All in Hansa owes Swedbank over 30 billion Swedish Kroner – all denominated in Euro and which can’t be paid. The equity capital of Hansa (roughly 7 billion Swedish Kroner) is also going to default.
To protect Baltic economies, firstly, central banks should have enough willingness and reserves to long Baltic currency and short Euro with gold. While the rest of the world is doing vice a versa. Any thoughts who is able to spend more capital: hedge funds or Baltic central banks?
Secondly, people must inject more Euros to Hansabank, SEB and other banks to diminish their loan-to-deposit ratios and make shareholders of Swedbank calm. Any one is willing to buy litas or kronas from the bank and give them all your Euro savings?
Yes, we do! Banks have been clever enough to hedge their currency risks by lending in Euro to residents of Baltic States. And we have been borrowing in Euro, protecting banks and exposing our own assets. The great scheme that has been working until recently, when borrowing capacity was more or less sustainable.
Today, it’s not true. Banks’ credit risks are topping due to bad loans coming from the Baltics. Inflation does not allow to reduce interest on domestic currency denominated loans and decrease demand for Euro. People do not funds banks anymore. Contracting GDP growth is pushing away foreign investors. Consequently, to make their shareholders calm, both Swedbank and SEB should closed down their Baltic branches. Until they will be forced to.
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adamkus |
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britney spears |
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airija |
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infliacija |
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laime |
This is how Google perceives Lithuanians, or at least some parts of global network located in my country. Just to be on a save side, the keywords chosen by far do not represent the nature of the citizens of Lithuania, but those on a graph made me grin a little. Further analysis is left for your imagination.
Adamkus – is the president of the Republic of Lithuania
Airija – Ireland in Lithuanian language, currently one of the most appealing emigration places of our citizens
Infliacija – is inflation, a thing that a few still are thinking about here
Laime – happiness, something that we all need, but do not seek it, at least in Google.
How beautiful is the country of Gibraltar! This is a welcoming piece of nature full of mountains, beaches, fresh air surrounded by relaxing smiles and Estonian exports. Small, but very loyal UK-owned colony is the 8th largest buyer of Estonian products: “mineral fuels, mineral oils and products of their distillation; bituminous substances”.
When was the last time when Estonia cared about Gibraltar so much, but today, when year-on-year GDP growth reached 0.4% in Q1, led mostly by exports, inflation flooded at 11.4%, current account stayed at risky height and relationship with its largest neighbour fell to depth. Proud but debatable behaviour of the Baltics states with Russia, selfish and overconfident, is an appealing topic to examine, especially under speculations about the worst financial crisis Tallinn, Riga and Vilnius can face after gaining our independence.
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After spending some time on Delfi, I have once again faced an eye catching idea: Sampo Bank (one of the banks, operating in the Baltic states) offers its clients an amazing 18% annual rate on their half-year deposits, while regular time deposits for the same period earn around 4.3%. However, as a rule, there also should be some nasty things, which the bank takes for additional privileges it grants. And I was prepared for that. This time, it was an obligation to invest 75% of your portfolio in Danske Fund Global Emerging Markets, and the rest into the amazing deposit.
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Mr Andris Skele, once the prime-minister of Latvia and the founder of the currently ruling Tautas partija (Folk’s party), delivered a speech yesterday at the ceremony of awarding the Spidola prize in the field of economics. During this speech he has presented another set of suggestions on improving economic situation in Latvia. I will not consider all his peculiar solutions; however, two of them seemed quite interesting for me to present and to analyze.
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