From the Statement by IMF Mission to Latvia on 2007

“Latvia, like other recent EU entrants, has benefited from an accession-related boost to income convergence….."Recently, however, fast credit and wage growth has caused the economy to diverge from a balanced and sustainable growth path, with domestic demand outstripping Latvia’s supply capacity. As a result, overheating has intensified, bringing higher price and wage inflation, a sharply wider current account deficit, and greater external indebtedness. Rapid credit growth in euros has left large currency mismatches on the balance sheets of households and corporates and a boom in housing prices that has diverted resources from the tradable sector. A pervasive "buy now-pay later” mindset has settled in and is heightening systemic risk. These developments, if not tackled firmly, will thwart a recovery of export growth.“

"There is an urgent need for decisive action to unwind overheating pressures and narrow external imbalances by sharply curtailing domestic demand. Notwithstanding actions by the Bank of Latvia to raise risk awareness, recent pressure on the lats signals growing investor impatience with the limited policy response so far. A comprehensive strategy is therefore needed to curb domestic spending and wage growth, and moderate real estate prices to rebalance incentives for investing in tradables sectors.”

Is it time to say “I told you so!”