No devaluation, says Latvian central banker Eds. Adds comment from EU representative Flores, updates unemployment figure (1st Lead)

Oct 1, 2009, 12:12 GMT

   Riga - Latvia's central bank governor said Thursday that devaluation of the Baltic state's national currency, the lat, would offer no solution to the country's economic troubles.

   Speaking at the bank's annual conference, Ilmars Rimsevics blasted both the economic policies of previous governments and economists who have recommended devaluation as a viable option as Latvia struggles with one of the world's deepest recessions.

   Advocates of devaluation were 'quacks' offering 'psuedo-solutions' Rimsevics said, while the previous government had failed to listen to the central bank's recommendations.

   'Some say Latvia has an alternative - to devalue the lat. From devaluation of the lat there would not be more money ... things would actually get more expensive,' he said.

   'Devaluation would not help the state but would increase our problems,' Rimsevics said, adding that the only solution open to Latvia was to cut expenditure by even more than currently planned.

   'In government sittings and in public we begged for them to save money. What did the government do? They enacted the anti-inflation plan too late. It turned out that this delay was quite fatal,' Rimsevics said.

   Euro adoption, possibly in 2014, should be the government's strategic aim, Rimsevics said.

Latvia is the recipient of a total 7.5-billion-euro economic bailout package from international lenders, including the International Monetary Fund, European Union and World Bank after its economy collapsed last year with the bursting of a property market bubble and the sudden end of cheap credit, mainly from Scandinavian banks.

   In order to qualify for the international loans, the Latvian government introduced budget cuts worth 500 million lats (1 billion dollars) for 2009, with similar amounts due to be saved in both 2010 and 2011.

   Pension payments and wages have been reduced, and the unemployment rate has climbed to 18.3 per cent, according to Eurostat data released Thursday, the second-highest level in the EU.

   The Latvian economy contracted 19.6 per cent year-on-year in the second quarter of 2009, with the figure for the year as a whole expected to be similar.

   The European Commission's Eva Flores, who is overseeing the EU's contributions towards the Latvian bail-out, had strong words for Latvia's policymakers.

   'Unfortunately the Latvian authorities like to talk numbers instead of talking policies. We would like to see this the other way around,' she said, warning that failure to stick to agreed reforms would result in future payments being withheld.

   'The rest of the loan that is available will not be able to come,' she said. 'That will be a very strong sanction.'