Latvia and the IMF seem to have come to agreement on lending terms to unlock EUR200M from the Fund, notes RBS. Fails still, however,
to understand Latvia’s logic defending its pegged LVL “at all cost,” instead of
taking “a much easier route” and devaluing to a competitive level. Says doing
so will require restructuring some private sector liabilities, but notes that
these liabilities are owed to foreign, mostly Swedish owned banks, which can
“surely look after themselves.” Adds with “much better credit fundamentals than Latvia,” there wouldn’t necessarily be a domino effect on pegged currencies in Estonian and Lithuania if Latvia devalues.