Devaluation "will not be considered" says Latvia Finance Minister

Jan 15, 2010, 13:44 GMT

Riga - Latvian Finance Minister Einars Repse hit back Friday at suggestions the recession-hit Baltic country may be forced to devalue its currency, the lat.

Calling for an end to any debate about the stability of the lat, Repse said devaluation 'will not be considered' and that the arrangement which pegs the lat to the euro would be maintained.

'The stability of the lat is one of our priority tasks, so any reduction in its stability would be pointless and have a very negative impact on our economy as a whole,' Repse said in a statement.

Efforts would continue to put the country on track to adopt the euro as its currency in 2014, Repse added.

A finance ministry spokesman confirmed to the German Press Agency dpa that the statement was designed to counter suggestions by American economist and columnist Mark Weisbrot that devaluation of the lat might help ease Latvia's severe economic problems.

On January 13 Weisbrot delivered a controversial lecture in Riga in the presence of Prime Minister Valdis Dombrovskis in which he said the total damage to the Latvian economy would represent 'the worst two years in the recorded history of the world in terms of output.'

The Latvian economy is predicted to have contracted by around 18 per cent in 2009 and central bank governor Ilmars Rimsevics said Thursday he expected a further contraction of up to 2.5 per cent in 2010.

The Baltic state is the recipient of a 7.5-billion-euro (11- billion-dollar) loan package from the International Monetary Fund (IMF), European Union and regional governments as it fights to rebalance its economy by means of an 'internal devaluation' with spending cuts on education, healthcare, social security and wages.

Pensions were also slashed but the measure was ruled as unconstitutional in court and the money withheld from pensioners must now be repaid.

In his lecture and subsequent column in the British newspaper The Guardian, Weisbrot claimed devaluation could help reduce Latvia's debt burden and bring a return to growth more quickly.