Tuesday, June 30, 2009

Rogoff: Latvia Should Devalue ...

According to Bloomberg:
Rogoff Says Latvia Should Devalue Its Currency, Direkt Reports

June 29 (Bloomberg) -- Latvia should devalue the lats to avoid a worsening of its economic crisis, said Kenneth Rogoff, a Harvard University professor and former chief economist at the International Monetary Fund, in an interview with Direkt.

The IMF made the wrong decision when it allowed Latvia to keep its currency peg, Rogoff said in Visby, Sweden today, according to the Swedish news agency. While a quick devaluation would be best for Latvia, Rogoff doesn’t believe it will happen for a long time because the IMF and Europe will provide the Baltic nation with loans, Direkt reported.

In a normal situation, Latvia would already have devalued the lats and defaulted on its debt, Rogoff said, according to the news agency. World leaders have decided no countries should be allowed to fail and Latvia is benefiting from that, he said.

If Latvia devalued, there is a risk that the turbulence would spread to other countries, which is why the IMF is supporting Latvia, Rogoff said.

Interestingly, what is going on behind the scenes at IMF, if former economists like Rogoff, Johnson, Roubini are leaning towards devaluation? The game rather appears to be about winning the time? For what? Just imagine like 1/3 of private borrowers going bankrupt ... how do you handle it?

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