OREANDA-NEWS  On 09 June was announced, that in response to the commotion surrounding the exchange rate of the Latvian national currency both in the Latvian and foreign public spaces, the Bank of Latvia feels obliged to reiterate that the responsibility over the exchange rate of the lats rests solely with the independent central bank, which is implementing a fixed exchange rate strategy. Stability of the lats will be maintained until the moment it is replaced with the euro, concluding the current program of macroeconomic stabilization that has been agreed with the international lenders, the IMF and EC.

Governor of the Bank of Latvia Ilmars Rimsevics:

"The Bank of Latvia will not conduct any experiments with the lats. A number of experts both in Latvia and abroad tend to mention devaluation as a solution, which it is not: devaluation would bring losses to the Latvian economy and would push its recovery to a more distant future.

- As a result of rising housing expenses and retail prices caused by more expensive imports, the population of Latvia, particularly the low-income segments that receive social support payments, would lose a substantial part of their income.

- As consumption decreases, enterprises go bankrupt and unemployment is on the rise, budget income will decrease putting social payments at risk.

- In Latvia, 85% of mortgage loans and 87.5% loans for business activities have been granted in euro. Consequently, loan payments would become notably more expensive and solvency of many private persons and businesses would become doubtful. Any bankruptcy would mean additional increases in unemployment, putting ever more families in a difficult situation and social budget under increased strain.

- Latvian exports would gain nearly nothing from devaluation, for imported equipment and raw materials necessary for production, including for export, exceed total exports. Other EU member states and countries outside the EU have also failed to show any gains from the drop in their exchange rates: in the course of one year, exports have decreased 12% in the UK, 18%in the Czech Republic, 16% in Hungary, 25% in Russia; Poland and Ukraine have also posted decreases.  No anticipated increases in exports have materialized after the drops in these exchange rates even though several months have passed since. The root of the problem currently lies with the foreign demand and the export structure of each particular country.

- Servicing the country's foreign debt would become substantially more expensive.

- Under conditions of widespread lack of confidence, devaluation, and thus inflation, in all likelihood could no longer be controlled thereby undermining any basis for investor confidence and recovery of the economy.

For the above reasons, determined actions of the government in amending the budget to meet the conditions set by the international lenders for receiving the loan, are of vital importance. If we do not receive the international loan, the budget would have to be trimmed even more, affecting those social groups whose income levels have been agreed to remain at the current level. Any chance to use measures to stimulate the economy, which are necessary for Latvia to get out of the deep economic hole would thus be lost."