VILNIUS - Lithuanians have begun another run on the litas, changing their savings into euros in fear of a sudden devaluation 's a decision that people think could be made by the government and central bank soon. The government has made a categorical statement that they would not devalue the litas in the foreseeable future, noting the currency board agreement's importance for financial stability.
"Absolutely not 's we have no intention [of devaluing the litas] 's there are no reasons and no arguments to do so," Mykolas Majauskas, the prime minister's advisor for economic matters, told The Baltic Times on June 9.
"The parliament's position is that we will maintain this currency peg. I can say we have no need to devalue the currency and not for the foreseeable future."
"There has been a lot of speculation, but it is not about the litas 's some is fueled by speculation, some by distrust. A lot of speculation has been about the lats. We hope the Latvian government takes all the steps to ensure that stability is maintained," Majauskas added.
The Lithuanian litas is pegged at a value of 3.45 litas per euro.
Bloomberg reported that Latvian currency traders expect the lat to drop to half its value against the euro within a year as the country struggles to cope with the effects of the global financial crisis (see page below). Bloomberg reported that the country was forced to buy more than $330 million in the first week of June to help support the currency.
The speculation has led to a loss in share value for the Swedish banks that are heavily invested into the Baltics.
The lat is expected to weaken 53 percent compared to its current rate of 0.71 against the euro, said Benoit Anne, the London-based chief strategist for Emerging Europe, Middle East and Africa for Bank of America Corp.-Merrill Lynch & Co.
The Latvian Central Bank, however, has said it would defend the value of the lat fervently.
The Lithuanian Free Market Institute said that the devaluation of the currency of Lithuania would spell disaster for little gain.
Experts from the institute said such a move by the authorities would not rescue the national economy and would only make people poorer and distance the adoption of the euro.
"From our point of view it would have a drastic effect 's the devaluation of the litas would be very bad. One reason that is often talked about is that people took their loans in euros 's about 70 percent in the private sector are in euros. The debt burden would increase overnight and most would go bankrupt," Vytautas Zukauskas, policy analyst at the Lithuanian Free Market Institute, told TBT.
"The main idea of the devaluation in Lithuania is that it would help export 's to some extent we agree because the workers salaries would be lower. But, the products we are producing are made with imported goods. So devaluating would only help to the extent of the salaries. [Significant exporters] oil companies and chemical companies are making products with imported goods," he said.
Meanwhile, the Lithuanian government has gathered around 50.87 million euros to help plug its budget deficit.
The Lithuanian Finance Ministry said it had borrowed 40 million euros from Nordea via a private placement, but declined to disclose the details.
It also raised 170 million Estonian kroons (10.87 million euros) via a private placement, bought by DnB Nord, half-owned by Norway's biggest bank, group DnB Nord.
As of May, it has borrowed 4.25 billion litas (1.23 billion euros) since the beginning of the year and is aiming for a 500-600 million Eurobond. Some of the funds raised have gone to refinance earlier debts.
But Lithuania's success in raising funds is in contrast to Latvia, where a debt auction of 50 million lats (71.43 million euros) failed to attract any bidders.
The Baltic states hold currency board agreements backed by foreign-exchange reserves held at the central banks.
According to data presented by the Bank of Lithuania, official reserve assets that were decreasing since the beginning of 2009, advanced 1 percent in May and at the end of the month made up 14.5 billion litas.
In January they totaled 15 billion litas and at the end of April equaled 14.4 billion litas.
