Comments on: Are the Baltics the new Argentina? http://www.creditwritedowns.com/2008/07/are-baltics-new-argentina.html Sat, 21 Nov 2009 08:48:41 -0700 http://wordpress.org/?v=2.8.6 hourly 1 By: A bearish view on Eastern Europe - Credit Writedowns http://www.creditwritedowns.com/2008/07/are-baltics-new-argentina.html/comment-page-1#comment-5220 A bearish view on Eastern Europe - Credit Writedowns Tue, 12 May 2009 15:43:39 +0000 http://www.creditwritedowns.com/2008/07/are-the-baltics-the-new-argentina.html#comment-5220 [...] as bad as Latvia, but a Depression with a Capital ‘D” nonetheless.  I had asked in July if the Baltics were the next Argentina.  The answer is obviously, yes.So what does this have to do with Hungary?  A lot. Western [...] [...] as bad as Latvia, but a Depression with a Capital ‘D” nonetheless.  I had asked in July if the Baltics were the next Argentina.  The answer is obviously, yes.So what does this have to do with Hungary?  A lot. Western [...]

]]> By: Edward Harrison http://www.creditwritedowns.com/2008/07/are-baltics-new-argentina.html/comment-page-1#comment-130 Edward Harrison Thu, 31 Jul 2008 19:35:00 +0000 http://www.creditwritedowns.com/2008/07/are-the-baltics-the-new-argentina.html#comment-130 Thanks for the post. Here's what I see. All three nations have current account deficits (capital account surpluses). They also have low interest rates: all around 6% over the past 3 months. Simultaneously inflation is exploding and they are pegged to the Euro.<br/><br/>What this suggests is that the economy is overheating and aggregate demand has been stimulated both by easy money (interest rate policy) and easy credit (lending growth). This is unsustainable.<br/><br/>Given the fixed exchange rate, the appropriate course of action would be to increase deposit reserve requirements and to increase interest rates to dampen liquidity.<br/><br/>Look at Iceland and the hot money that forced them to hike rates to 15%+. This is what has to happen.<br/><br/>On the currency side of things, a pegged currency is not the most desirable currency regime. I think a dirty or free float would be a good idea.<br/><br/>The site Eastern Europe Economy Watch has some very good information that may yield other suggestions:<br/>http://easterneuropeeconomy.blogspot.com/<br/><br/>Cheers. And thanks for your feedback. Thanks for the post. Here’s what I see. All three nations have current account deficits (capital account surpluses). They also have low interest rates: all around 6% over the past 3 months. Simultaneously inflation is exploding and they are pegged to the Euro.

What this suggests is that the economy is overheating and aggregate demand has been stimulated both by easy money (interest rate policy) and easy credit (lending growth). This is unsustainable.

Given the fixed exchange rate, the appropriate course of action would be to increase deposit reserve requirements and to increase interest rates to dampen liquidity.

Look at Iceland and the hot money that forced them to hike rates to 15%+. This is what has to happen.

On the currency side of things, a pegged currency is not the most desirable currency regime. I think a dirty or free float would be a good idea.

The site Eastern Europe Economy Watch has some very good information that may yield other suggestions:
http://easterneuropeeconomy.blogspot.com/

Cheers. And thanks for your feedback.

]]> By: Jüri Saar http://www.creditwritedowns.com/2008/07/are-baltics-new-argentina.html/comment-page-1#comment-128 Jüri Saar Thu, 31 Jul 2008 15:06:00 +0000 http://www.creditwritedowns.com/2008/07/are-the-baltics-the-new-argentina.html#comment-128 I thought that the reason for the Argentinian collapse was unsusistainable government borrowing that wasn't limited even after they droped the peg - they just kept spending like drunken sailors :)<br/><br/>"the Baltics do not have the appropriate fiscal and monetary policy for a fixed exchange rate."<br/><br/>Ok, what is the appropriate fiscal and monetary policy for the Baltics? Being an Estonian, I'm of course more interested in what would have been appropriate for Estonia. THoughts? I thought that the reason for the Argentinian collapse was unsusistainable government borrowing that wasn’t limited even after they droped the peg – they just kept spending like drunken sailors :)

“the Baltics do not have the appropriate fiscal and monetary policy for a fixed exchange rate.”

Ok, what is the appropriate fiscal and monetary policy for the Baltics? Being an Estonian, I’m of course more interested in what would have been appropriate for Estonia. THoughts?

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