Latvian central bank blasts government over budget plans Europe's devaluation nightmare (Extra)

Oct 7, 2009, 15:32 GMT

Riga - The Latvian central bank said Wednesday the government in the recession-hit Baltic state was guilty of fostering 'distrust and lack of confidence' as it argues with international lenders over the contents of the 2010 state budget.

'What the Bank of Latvia, financial and economic experts, and entrepreneurs have been warning against in recent months and weeks is happening. Another wave of distrust is beginning to roll over Latvia,' a stongly-worded statement issued by the bank said.

It noted 'less than clear signals associated with the process of adopting the state budget' and accused Prime Minister Valdis Dombrovskis of choosing 'the most inappropriate moment possible' to reveal plans for re-drafting laws governing mortgage repossessions.

'As economic recovery is gradually coming within our reach, such a measure would not help to encourage lending; on the contrary, it would slow the recovery down,' the bank said.

The bank's fears that investor confidence in Latvia is evaporating appeared to be backed up when buyers failed to offer any bids at an attempted auction of 8 million lats (17 million dollars) of treasury bills.

In contrast, neighbouring Lithuania - which is also experiencing a deep recession - confirmed Wednesday that it had successfully sold a bond issue worth 1.5 billion dollars.