Mike Collier in Riga -

The 'D-word' is stalking the Baltic economies again, only this time it's Estonia on the receiving end of speculation about devaluation. Both Latvia and Lithuania regularly have recently had to quash similar talk, but it comes as a surprise to find the Estonian kroon the subject of jitters given that most analysts agree the the Estonian economy as being in better shape than the other Baltic ones.

The rumours were sparked by the coincidental release of several pieces of information that would probably have been brushed aside if they weren't made public at the same time.

First came a Goldman Sachs report giving a generally downbeat assessment of the Baltic economies, which served as a background for every scrap of information that followed.

On Friday, November 9, Franciszek Rozwadowsi, head of the IMF office in Estonia, told a press conference that the Estonian economy should be able to avoid a crash landing as long as the government manages to tighten public spending. Even though he explicitly said there was no need to talk about devaluation, the mere fact he used the word seems to have been enough.

On the same day, the Estonian financial daily Aripaev published a report drawing parallels between the state of the Estonian economy today and the Swedish economy just before it devalued the krona in 1992. In both cases, extreme wage pressures, a property boom, a growing current account deficit and a tightly-pegged currency were present. The krona was pegged to the ecu, the forerunner of the euro to which the kroon is pegged by means of a currency board.

By Monday, November 12, the Finnish financial daily Kauppalehti had published its own take on the issue, despite the absence of anything to report except anecdotal evidence that speculators are circling the Estonian currency like vultures. According to Kauppalehti , "Currency trading is a sign that investors expect the kroon to be devalued... the pressure for devaluation is growing."

In response, the Estonian central bank denied the country's currency was under pressure from speculators and said that talk of a kroon exchange rate change was unfounded. And while Estonia's Finance Minister Ivari Padar admitted that there are some similarities with pre-devaluation Sweden, he stressed this was unimportant. "I see no reason for a collapse. The Estonian kroon has been down several times before and we have always come out on top. The kroon is efficient and I cannot see a reason for panic," said Padar.

Art Lestberg, head of currency markets at Hansabank Markets, took a similar view, saying that he hasn't noticed any unusual fluctuations in the currency markets. "Customers are buying and customers are selling - there is nothing extraordinary," he said.

Perhaps the most sensible assessment of all the devaluation talk so far came from maverick investor Kristjan Lepik. Writing in his blog, Lepik asked: "Why not compare Estonia with pre-civil war Botswana? I am sure there are many similarities."

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