Latvia missed out on a 200 million payment from IMF

Discussion in 'Economics' started by ASusilovic, Apr 2, 2009.

  1. Credit default swaps written on the sovereign debt of Latvia rose sharply on Thursday after its Prime Minister said it had missed out on a €200m payment from the International Monetary Fund. Latvia, which already has a €7.5bn rescue package from the Washington-based IMF, was refused the extra payment after its previous government failed to restructure its budget.

    The previous administration collapsed in February after rioters took to the streets in Riga. Standard & Poor’s meanwhile had downgraded Latvia’s credit rating to “junk”.

    Five-year Latvian credit default swap spreads rose by 70 basis points to 921 according to data provider CMA Datavision. This means it costs €921,000 per year to insure a notional amount of €10m against default over a five year period.
  2. vikkiv


    That's not a surprise - many economists are already expected some sort of such shifts/rejection/delays in payments schedule. IMF/EU and other bail-out creditors for Baltics have strict rules and conditions which currently weren't followed by Baltic gov. Thus such outcome is quite logical.
    Big part of resources are just wasted to prolong inefficient management through "free gift" to inefficient gov. programs implementators. Majority of their expenditures are done at inadequate pricing and with doubtful benefit to society and economy. Their current gov. is the same old soviet-type command system creeped by corruption and all it does - redistributes income/wealth to small "right" part of society without producing much useful surplus for all population. Now as an outcome they have small part of population hit out from active labor-force for generations - just because they have enough wealth and don't need much anymore - classic example of crony "capitalism" with least value added and weak social resistance but strong social depression as consequence.

    Check how Latvian gov. utilized unspended during the year planned budget at the end of each period (apparently that's main reason why they haven't any reserves left at the beginning of this crisis.

    Their so-called economic "growth" were based on rapid both, monetary and fiscal expansion.


    Last graph obviously confirms reasons why Latvian inflation was highest in region (duration and magnitude of monetary growth through formation of relevant expectations), plus lowering competition level (with assistance from corruption/lobby/bureaucracy).

    For majority of local politicians over last 10 years were quite common to "work" on many positions at the same time without required competence in relevant field (no economic reasons but because of corruptedly-political reasons) - and this practice still continues without much changes (consuming IMF/EU and other resources).