IMF and Latvia—Why going for third best?
Torbjörn Becker appears in the Swedish newspaper Dagens Industri with an op-ed arguing that Latvia should devalue and adopt the Euro.
Latvia is one of the great success stories in managing the transition from central planning to market economy. Initially the fixed exchange rate contributed to stability, but over time it has lead to overheating and loss of competitiveness.
When the IMF was called in, their analysis was clear; the first best would be to devalue and adopt the euro; or second, widen the band to allow a 15 percent devaluation. Instead the program opted for third best, do nothing. In the following text it is argued that Latvia should reconsider the first best option of devaluation instead of going for third best to reduce the cost for all involved parties.
Full text (in English) or shorter DI debatt article (in Swedish) by Torbjörn Becker, Director of SITE .