Saturday, June 9, 2007

Caudillo economy

My muses came back yesterday after a nice bootle of the Hungarian Ottonel and watching the sunset whilst sitting on my porch! Finished an article fpr and now the vacation is almost here!!! In the meantime it is interesting to notice how the life fluctuates in cycles in Latvia. Whilst presidential rollercoaster race is over, the second rollearcoater run is on again - this time it is ecenomy.

BICEPS is an independent recearch centre at the Stockholm School of Economics in Riga and they presented the research Inflation in Latvia - roots, perspectives and consequences, and, which was followed by press conference last Thursday. The current inflation rate has slowed (from 8,9 to 8,2% annual rate) due to the first imapact of the anti-inflation measures of the government. Nevertheless, the current account deficit is running at the stunning rate of 26% and is similar to the island republics - Seichelles, Fiji and Kiribati! During the press conference BICEPS researcher Mr. Alf Vanags uttered that one of the possibilities to lower the inflation rate and alleviate the producers would be devaluation of the national currency - the lat. Other researchers voiced their concerns about the devaluation solution, and suggested that the best option for government would be to start to reform the stagnant fiscal policy.

Instead of critically analysing the warning signs of the independent research centre the Governor of the bank of Latvia, Mr Ilmārs Rimšēvics and the Prime Minister reiterated almost in one voice that there is no devaluation of the Latvian currency planned! I almost start to believe that whenever our politicians start making political slogans about economic performance in Latvia there is some hidden sceleton in the cupboard. One must not be an economist to understand that Latvian consumers spend at least third more that they earn from their annual income! When I hear Latvian Minister of Finance, Governor of the Bank of Latvia, and finally Prime Minister assuring that a soft landing of the Latvian economy is the most probable scenario I wondder where do they derive their optimism from? Perhaps you may consider me a fiscal conservative, but I have a feeling that the only soft landing of the Latvian rollercoaster cart is in the muddled waters of the caudillo economy. I am afraid if the hard landing happens many more of the impowerished members of the nascent middle class would simply pack their belongings and leave...

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