Adjustment Under a Currency Peg: Estonia, Latvia and Lithuania During the Global Financial Crisis 2008-09

35 Pages Posted: 1 Feb 2011

See all articles by Catriona Purfield

Catriona Purfield

International Monetary Fund (IMF)

Christoph B. Rosenberg

International Monetary Fund (IMF) - European Department

Date Written: September 2010

Abstract

The paper traces the Baltics’ adjustment strategy during the 2008-09 global financial crisis. The abrupt end to the externally-financed domestic demand boom triggered a severe output collapse, bringing per capita income levels back to 2005/06 levels. In response to this shock, the Baltics undertook an internal devaluation that relied on unprecedented fiscal and nominal wage adjustment, steps to preserve financial sector stability as well as complementary efforts to facilitate voluntary private debt restructuring. One-and-half years on, the strategy is making good progress but not yet complete. Confidence in the exchange rate was maintained, the banking system was supported by its parent banks, external imbalances and inflation have largely disappeared, competitiveness is improving, and fiscal deficits are gradually being brought back towards pre-crisis levels. However, amid record levels of unemployment, further reforms are needed to foster a return to more balanced growth, fiscal sustainability, and a healthier banking system.

Keywords: Baltics, Currency pegs, Debt restructuring, Estonia, Financial crisis, Fiscal policy, Global competitiveness, Global Financial Crisis 2008-2009, Labor market policy, Latvia, Lithuania, Private sector, Stabilization measures, Wage adjustments

Suggested Citation

Purfield, Catriona and Rosenberg, Christoph, Adjustment Under a Currency Peg: Estonia, Latvia and Lithuania During the Global Financial Crisis 2008-09 (September 2010). Available at SSRN: https://ssrn.com/abstract=1750701 or http://dx.doi.org/10.2139/ssrn.1750701

Catriona Purfield (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Christoph Rosenberg

International Monetary Fund (IMF) - European Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
641
Abstract Views
2,209
rank
54,119
PlumX Metrics