Back to (hopefully) more regular blogging after finishing with a big deadline. Here are some impressions from the second American Chamber of Commerce (AmCham) lecture devoted to this most discussed topic - the pros and cons of devaluation. First of all, my compliments to the AmCham for arranging this remarkable event, which featured Torbjorn Becker, Morten Hansen, and Governor Rimševičs. Torbjorn is a director of Stockholm Institute of Transition Eonomies (SITE) at Stockholm School of Economics and formerly a senior economist at IMF's research department. With Torbjorn's views not being a secret to anybody, this time there was much more of a real debate.
Unfortunately, I cannot provide a detailed account of what has been said at the lecture since the event was closed to the press and and declared “off-the-record” – apparently at the insistence of one of the participants. Although I can’t quote anybody, I can provide a very general account.
Torbjorn Becker presented the usual set of arguments for devaluations, stressing the immediate benefits to the local producers from import substitution as well as the aspect of fairness. Why should a majority of the population share the costs of a minority with foreign currency loans? He also pointed that blindly sticking to the fixed exchange rate was what effectively brought the present situation, as this implied a subsidy for borrowing in foreign currencies.
Morten took more of a neutral ground, although leaning somewhat towards giving deflation a chance. In turn, Governor Rimševičs displayed his usual set of fallacies about the comparative effects of devaluation and deflation on the economy.
My overall impression is a rather sad one. Unfortunately, the event added substantially to my suspicion that the Governor is not amenable to economic reasoning. Apparently, his main goal is adoption of the euro – whatever the cost. Somehow, the euro has become an end in itself, rather than a tool for increasing public welfare. Perversely, the monetary policy has become the idol, rather than a “policy”. I find it hard to explain this. Perhaps, personal reasons are at work – after all, if Latvia gets to join the euro-zone “properly”, the Governor gets to keep his job with a seat at the European Central Bank. How many people will lose their jobs in the process, how hard and long the recession will be – none of these issues are deemed to be important enough. The really sad thing is that so few in this country seem to understand this.