- Title: JAPAN: Latvia's PM says sticking to tough fiscal policy with eye on joining euro
- Date: 23rd January 2009
- Summary: TOKYO, JAPAN (JANUARY 22, 2009) (REUTERS) GODMANIS READING NEWSPAPER IN INTERVIEW ROOM AT TOKYO HOTEL (SOUNDBITE) (English) LATVIAN PRIME MINISTER, VARS GODMANIS SAYING: "The problem for us is that by choosing this way of adjustment that we will stay pegged to euro, is also because if we will get through this programme positively it's quite clear in 2012 we are ready to join euro." (SOUNDBITE) (English) LATVIAN PRIME MINISTER, VARS GODMANIS ANSWERING JOURNALIST'S QUESTION, SAYING: ''We are planning to join euro in 2012... or a year later.'' (SOUNDBITE) (English) LATVIAN PRIME MINISTER, IVARS GODMANIS SAYING: "If we went away from euro today, I don't see any, very many positive results." GODMANIS TALKING TO REPORTER AFTER INTERVIEW
- Embargoed: 7th February 2009 12:00
- Keywords:
- Location: Japan
- Country: Japan
- Topics: Finance
- Reuters ID: LVA1BY79D31ZINP6AZDNBQHNJQR4
- Story Text: Latvia is not planning to devalue its currency, Prime Minister Ivars Godmanis said on Thursday (January 22), adding that the country hoped to join the euro in 2012 or 2013.
Godmanis, who is visiting Tokyo this week, held talks with Japanese Prime Minister Taro Aso Thursday evening at Aso's official residence.
The eastern European nation of 2.3 million, saved from bankruptcy last year by a 7.5 billion euro (9.7 billion USD) rescue programme from the International Monetary Fund and the European Union, was hit by riots last week over cuts in social spending.
The government's economic programme includes tough budget cuts, higher taxes and lower real wages. A key condition put forward by the government when agreeing to the IMF/EU package was that Latvia would keep its currency pegged to the euro.
Some economists have said devaluation would be a less painful course.
But Godmanis said a devaluation would have drawbacks for Latvia, since it relies heavily on imports for energy resources and raw materials, and also because many younger home owners hold euro-denominated mortgages.
"The problem for us is that by choosing this way of adjustment that we will stay pegged to euro, is also because if we will get through this programme positively it's quite clear in 2012 we are ready to join euro,"
Godmanis told Reuters prior to his meeting with Aso.
''We are planning to join euro in 2012 or a year later,'' he said.
"If we went away from euro today, I don't see any, very many positive results," added Godmanis.
His stance echoes that of Latvian Finance Minister Atis Slakteris, who told Reuters earlier in the week that Latvia's economy should start growing in 2011, after two years in recession, and meet euro zone entry criteria in 2012 without having to devalue its currency beforehand.
Godmanis said euro-denominated borrowing in Latvia grew after foreign banks brought their business to the country following its entry into the European Union in 2004.
They brought long-term funds and found a large market for mortgages in Latvia, and the result was a sharp rise in borrowing within a few years, the prime minister said.
According to Godmanis it is the younger sections of Latvian society that have gone for borrowing in euros, adding that it was easy to imagine what kind of burden would be placed on such loans if the Latvian currency rate were to fall.
In Latvia, the number of vacancies available to jobseekers in January 2009 is down 82 percent from the same time the year before.
Latvia was once one of the fastest growing economies in the EU but has quickly gone from double-digit expansion to full-blown recession due to the global financial crisis.
The government forecasts the economy may shrink by around 5 percent this year, while the European Commission's latest forecast predicts a 6.9 percent drop, the worst performance in the entire EU.
Latvia operates a quasi currency board system, under which its currency, the lat, is pegged with a 1 percent trading band around a central rate of 0.7028 euros. - Copyright Holder: REUTERS
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