Wednesday, 27 May 2009

A fistfull of Lati

It's High Noon; the sun sears down on a dusty street; women and children have scurried to safety; tumbleweed rolls between two gun-slingers as they stare each other down through slitted eyes; hands twitch inches above the six-shooters.

Yes, folks, the IMF and the Government of Latvia are duelling for control of the Latvian economy. The IMF has already handed over a 7.5bn euro loan and wants 40% spending cuts before it will fork out more. The Latvian government is desperately defending its currency - the Lat - as it strains against its euro peg. Short-term interest rates are up near 14% while the economy is shrinking at 18% a quarter. The Central Bank has spent a third of its foreign currency reserves buying Lati to hold up the value and the IMF wants the rest.

It's Argentina all over again. Who will blink first? Whatever happens, the vultures will feast.

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