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Wednesday, January 21, 2009

Freezing Yourself Out In Lithuania And Latvia

This very short piece of news in Bloomberg this morning is straight to the point, how the hell are you going to export to countries (whenyou now need to live from exports) if those countries are having massive devaluations while you mark time. Oh, I know, the Ukraine and Russia represent only a small fraction of Baltica exports, but they aren't the only ones falling, the Romanian Leu, the Polish Zloty, the Hungarian Forint, the Czech Koruna are all falling, and all these countries are direct rivals for market share in the rest of the EU.

AB Snaige, the only refrigerator maker in the Baltic states, will cut about 300 jobs in its Lithuanian factory, citing lower demand in Russia and Ukraine as both the ruble and hryvnia lose value against Lithuanian litas. Sales in Russia and Ukraine have “stopped” and “there is no evidence these markets will revive” during the first quarter, the Alytus, Lithuania-based company said in a statement to the Vilnius Stock Exchange today. The company employs “more than” 2,300 workers in its two factories in Lithuania and Kaliningrad, Russia, according to its Web page.

Basically as I say, it also matters which currency you are pegged to. One commenter has made this point.

Regarding Latvia, I'm working for industrial company in Latvia, with most customers from Sweden or Russia and latest SEK and ruble rate changes have really eaten up business both for export and import. From SEK/LVL we lose in funny sequence, more you sell - more you lose. Today, here are a lot and a lot of industries closed, closing or planning to close.

Evidently there is a lot of "restructuring" going on, but is it the kind of restructuring Latvia and Lthuania need, I ask you?

Euro To Swedish Krona

Here's the chart of the Euro with the Swedish Krona.

Euro To Russian Ruble

Here's the Euro/Ruble chart:

Euro To Polish Zloty

Finally, here's Latvian industrial output for November, anyone spot the trend?

And incidentally, Latvian exports were down 19.7% between October and November 2008. And incidentally, Latvian exports were down 19.7% between October and November 2008. Oh, I know, I know, not only doesn't Latvia need exports, it doesn't need industry either. Meanwhile, onwards and downwards we go.


Gnudiff said...

I understand that you have supported the devaluation as a viable alternative to the existing plan for such countries as Latvia.

This article seems to show me as a non-economist why devaluation could help exporters.

However, I wonder, if you would care to also write an article about the scenario for typical javascript:void(0)middle-class family in Latvia in case of devaluation and how it would differ from what we are experiencing now, considering that a major part of the population does have housing credits and vast majority of those credits are in euros for periods of 20+ years.

I tried to find statistical data about typical family income/expenses here. At the moment I don't have it yet, but I remember a publication about that sometime last year.

Edward Hugh said...


Just to let you know I have moved this comment over to the Latvia Economy Watch blog. There is more debate there than here. I have seen it, and I will reply when I get a quiet moment.