Macarena is --like-- SO interested in recent data from the baltic countries. In Latvia, for instance, real growth in 2006 was 12%, while the current account deficit was 21% of GDP.
If you think that is interesting, take a look at policy. Investors are obviously concerned (even the rating agencies, WOW, have "warned" about overheating) and there is very strong pressure on the lat (the local currency), which is pegged to the Euro within a narrow band of 1%. The peg, Macarena notes, is quite firm: international reserves more than double the monetary base at current exchange rates.
Last week, the central bank raised interest rates to 5.5% (Macarena finds this almost too cute, inflation is well above 6%) seeking a signal that might strenghten credibility.
This reminds Macarena of worrisome times. Deja-vu all over again, as the great Yogi Berra once said. Most recently, macro adjustment in little Iceland (population: 500,000) caused significant global turmoil. More dramatically, and much less recently, Macarena remembers Thailand 10 years ago. The baht devaluation generated a chain reaction which affected everybody.
Though Latvia is an extreme case, Macarena invites you to take a look at, and to think about, recent data from Lithuania and Estonia, where things are less dramatic, but equally directed and poignant.
Macarena thinks that the links between the baltic-country credit boom and the foreign banks that have provided their ammunition is a serious problem, much more serious, say, than the U.S sub prime mortgage market drama.
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1 comment:
So Macarena, this means that Latvia won't be your next summer destination, regardless if you wear a one-piece swimsuit?
In any case, I wonder how one can effectively measure if you truly have a credit boom vis a vis an increase incredit due to strong outreach efforts. In some cases you can see important growth rates in aggregate banking credit, but it is always very difficult to unravel if this is the result of granting more credit to the same individuals (which may increase overall credit risk and forecast the next crisis), or alternatively if you are increasing outreach and granting more credit to new indiiduals with diverse risk profiles (but maybe an average risk profile). New lending technologies certainly help to do this. So how can one be sure that this is deja-vu? What has been happening with non perorming loans, provisioning, etc. up in the baltics?
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