Will the real litas please stand up?

  • 1999-07-01
  • By Paul Beckman

VILNIUS – Lithuania's national currency, the litas, seems to be struggling to find its true self as of late.
Discussions surrounding its expected detachment from the U.S. dollar and re-attachment to a mixed currency basket regularly flourish in local newspapers.
A swarm of rumors that the litas will be devalued have also led to plenty of inspired gab sessions. Lithuania's central bank and Finance Ministry, however, shed light on which direction they plan to send the litas.

No repeg rush
Arguments about whether Lithuania should repeg its litas from the U.S. dollar to a dollar-euro currency basket are not very frequent.
As Lithuania continues to economically orient itself toward the European Union, the proposed repegging move has received ample support from many of the country's financial experts. However, a more nagging question regularly worms its way onto discussion tables: When is the best time to make the switch?
Reinoldijus Sarkinas, head of the Bank of Lithuania, had recently dampened the spirits of those who think the litas' jump should occur as soon as possible.
After meeting with newly dubbed Finance Minister Jonas Lionginas in the latter half of June, Sarkinas told reporters that he was not in favor of rushing the Lithuanian currency's new orientation, which he said will occur no earlier than next year.
"We agreed that there is no reason to change the litas' course," said Sarkinas.
A couple of days earlier, similar sentiments were expressed by Lithuanian Prime Minister Rolandas Paksas. The prime minister stressed the need to deal with the litas orientation switch in a cautious manner and to put the move on the back burner.
According to Sarkinas, a more exact timetable would be discussed this coming fall. In the mean time, the central banker and his crew intend to keep an eye on international market trends and movements of the somewhat wobbly euro. The switch can occur only six months after the official announcement comes.
Nerijus Bagilis, analyst at Hermis Finansai management and consulting firm, tended to agree with the wait-and-see policy. With the euro still posting about a one to one exchange rate with the dollar after falling about 12 percent since its introduction in January, Bagilius suggested waiting for the new currency's recovery.
"The litas should not be repegged now with the unfavorable exchange rate," said Bagilis. "The euro should recover in the middle term or maybe the short term. At that time it will be more favorable to [repeg the litas]."
But not everyone is in favor of sending the litas down the slow road of change. Euginija Martinaityte, director of the Lithuanian Banking, Insurance and Finance Institute, indicated that a good time for the switch would be as soon as possible. Being pegged to the dollar, the litas growing strength against the euro has given some Lithuanian exporters fits.
"The one to one rate is a good time to change to the basket. The switch would be better for business people," said Martinaityte.
But Martinaityte refused to shovel criticism onto those proposing a more sluggish approach to switching the litas' orientation. She said that the central bank has been pushing some suggestions, like the repegging of the litas, in Parliament and the government, but has not always received a lightening-quick reaction. Martinaityte added that the role of the central bank has been positive.
Devaluation evaluation
Perhaps a more touchy issue, and one which is getting better at grabbing the spotlight, is whether the litas should or should not be devalued. Sarkinas and some financial analysts have come out against any such move, but others claim the time is getting ripe to get the devaluation ball rolling.
"There is no currency as stable as the litas," said Sarkinas. "No changes will be made by anyone."
Bagilis added that devaluation is not the best way to go for a country like Lithuania, which has a big tradable goods sector.
"Devaluation [of the litas] is not a good idea at all," said Bagilis. "If we have a big tradable goods sector, inflation will rise immediately after devaluation. And the rising prices will wipe out the positive effects of devaluation."
Martinaityte, however, said the positive effects of devaluation should not be ignored. The move could help ease the current "difficult times" which exporters are experiencing.
"It's clear that it would be good for businesses," said Martinaityte. "The economy seems to be already prepared for it."