Lat will not be devalued

RIGA - Latvian bankers have denied any threat to the lat, the Latvian currency, despite the temporary currency crisis which took place Aug. 16, when no U.S. dollars could be bought in any Ventspils currency outlets by the day's end. Currency dealers ran out of dollars by early afternoon, the daily Neatkariga Rita Avize reported.

The crisis broke out after Ventspils Mayor Aivars Lembergs allegedly ordered to keep all uncommitted municipal funds in U.S. dollars.

"The current economic situation in the country does not allow for optimistic forecasts," Lembergs said.

He blamed the unstable economy on his long-time political opponent Prime Minister Andris Skele, who owns Ave Lat Grupa, a concern of Latvia's leading food processing companies.

"Until Prime Minister Andris Skele pays his debts, he will regard Latvia as a subsidiary of his Ave Lat to be managed at will," he said.

Lembergs denies the allegations of having made the order. "I have not issued an order, either spoken or written, to keep municipal funds only in U.S. dollars," Lembergs said in his statement to the press.

According to the Vents-pils mayor, he only recommended to spend lats instead of U.S. dollars and not to rush into converting free dollar reserves into lats. The economic situation in Latvia is too unstable to trust the stability of the Latvian currency, Lembergs said.

The president of the Latvian Commercial Banks' Association, Teodors Tverijons, claimed that "the lat's exchange rate has no relation whatsoever to the economic situation. The lat is neither the U.S. dollar nor the German mark dependent on fluctuations of the economic situation."

The reason behind it is that the lat is pegged to the SDR currency basket, and its rate depends on fluctuations in the five currencies included in this basket. As long as the central bank has sufficient foreign currency reserves, significant fluctuations in the lat's exchange rate are unlikely.

Bank of Latvia foreign currency reserves are currently 113 percent of all lats in circulation.

Even if all municipalities decided to convert their funds into U.S. dollars and the state itself would join them, the central bank would be able to meet all their foreign currency demands, Tverijons said.

According to Hansa-banka senior currency dealer Martins Jurjans, there is no external pressure on the lat. "There is no pressure from foreigners and nobody from the outside is buying in great volumes," Jurjans told the Baltic News Service.