Latvia won’t survive if the country doesn’t devaluate its currency, Harvard professor Kenneth Rogoff said during a speech in Sweden.

Latvia’s currency peg is bound to crack and the country must devaluate its currency as soon as possible. That’s the message from Kenneth Rogoff, professor of public policy and of economics at Harvard University, during a seminar at the political event Almedalen Week on the island of Gotland, Sweden.

With a fixed exchange rate Latvia “will never survive”, he said. And the longer Latvia waits to devaluate the currency the worse the economic crisis will get.

Last quarter the Latvian economy shrank 18 percent, the steepest slump in the European Union. As recently as 2007 Latvia boasted double-digit economic growth.

Latvia is currently slashing government spending in order to fulfilling the conditions of a 7.5-billion-euro (10.5-billion-dollar) bailout with the International Monetary Fund, the EU and top regional investors including Sweden.

However, Kenneth Rogoff believes that the IMF made a mistake when they allowed Latvia to keep its currency peg, the Direkt news bureau writes. With knowledge from a number of other countries with similar problems, like Argentina, it’s odd that the IMF didn’t make the Latvian currency float. As long as the IMF and other organizations hold Latvia under its arm the risk increases that the currency turbulence will spread to other countries, he warned.

At the same time, Kenneth Rogoff said that the Swedish krona currently is one the world's most undervalued currencies. The krona has been under pressure due to the turbulence in the Baltic States where Swedish banks are key players and dropped heavely against the dollar and the euro.