By Andrew Ward in Stockholm
It is not every day that the International Monetary Fund is forced to distance itself from a forged document.
So Tuesday’s denial by the IMF that it favours devaluation of the Latvian currency, the lat, marked one of the fund’s more unusual statements.
The fuss was triggered by a report from the Latvian national news agency, LETA, claiming that IMF director-general Dominique Strauss-Kahn had written to a Latvian politician in support of a “mini-devaluation”.
This prompted the following stern rebuttal from the IMF representative in Riga:
Regarding this morning’s LETA story, which referred to a purported letter from the IMF Managing Director: the letter mentioned is false and we advised LETA that it was forged. It does not represent the views of the IMF.
Speculation over a possible devaluation has swirled around the lat since the IMF and the European Union rode to Latvia’s rescue with a €7.5bn bailout in 2008. Read more
Latvia’s government decided on Tuesday formally to adopt 2014 as its target year for euro zone entry. Latvia has already said it wants to adopt the euro in 2014 and the date is part of its €7.5bn bailout programme with the International Monetary Fund and European Union. Read more
The International Monetary Fund voted yesterday to release €200.3m to Latvia, the third installment of a €1.7bn credit line approved in December 2008. The IMF has already transferred about €1bn during the program, which was also extended by nine months until the end of 2011. An EC transfer of about €500m is expected to follow in about mid-March.
“The Latvian authorities are to be commended for their strengthened program implementation, which yielded better-than- expected fiscal performance in 2009 and helped improve confidence,” Takatoshi Kato, deputy managing director of the fund, told Bloomberg. Latvian legislators have passed spending cuts and revenue increases of about 500m lati ($966.7m) in its 2010 budget to meet the loan’s terms. Read more
The Latvian central bank has agreed to keep interest rates and reserve requirements unchanged. The Bank of Latvia said that substantial rate reductions had already taken place and lending rates were close to those set by the Bank. Liquidity was also seen to be sufficient, and had in fact “been high in recent months”. The Bank said: “The low lending activity is currently determined not by interest rates but by the cautious lending policies of banks in the complicated economic circumstances as well as by the low demand for loans both from households and businesses.”
Rates are as follows:
Happily for Sweden, Latvia accounts for less than five per cent of Swedbank’s total lending and only three per cent of SEB’s, and both banks have recently strengthened their balance sheets. Less happily for Sweden, currency traders are bearish the krona, writes Andrew Ward of the FT Read more
Oil trades may be denominated in a basket of currencies, rather than the US dollar. Brazil is having a good week, and there are growing calls for IMF reform to go further than that agreed at the G20 Pittsburgh meeting Read more