Latvia’s Austerity Measures Proved Viable for Lithuania and Estonia

“For two years bankers have said that a Latvian devaluation was inevitable. The struggle to save the lat’s peg to the euro was bound to end in tears. And a panic in Latvia could topple the wobbly economies of Estonia and Lithuania, which have similar exchange-rate regimes, with repercussions extending across Eastern Europe and to Scandinavian banks that lent recklessly in the Baltics. Yet despite a fall in GDP last year of 17.5%, Latvia seems to have achieved something many thought impossible: an internal devaluation.” – the Economist commented in “Baltic thaw, Aegean freeze” on Feb 25th 2010.

Evidently Latvia and other Baltic States have successfully managed to turn the tide off and prove that there are alternative ways to currency devaluation to regain competitiveness in foreign markets and save the economy in the time of gloom. Cuts in public expenditure and salaries that worked for Latvia proved viable for Lithuania and Estonia. 

The Lithuanian Government has recently received positive response from the European Commission, the US Government and the International Monetary Fund (IMF) for the results it achieved to balance the public finances and the economy as a whole.  The latest forecast revisions from the IMF and Ministry of Finance show that Lithuania shall be the first among the three Baltic States to get back on the growth track of 1.6 % in 2010, making it “the only one of the three Baltic economies expected to be in the positive territory in 2010”. IMF says Lithuania’s economy will continue growing in 2011 by 3.2 %.