Lithuanian finmin rules out currency devaluation

Marcin Grajewski
January 22 2008

BRUSSELS, Jan 22 (Reuters) – Lithuanian Finance Minister Rimantas Sadzius on Tuesday ruled out currency devaluation in his fast-growing Baltic country, burdened with high inflation and a widening current account deficit.

Sadzius said global financial turmoil did not increase the risk of a hard landing in Lithuania and two other Baltic countries, Estonia and Latvia — all European Union newcomers with currencies pegged to the euro and economies expanding fast.
Soaring inflation in December and expectations of more price pressure in 2008 renewed financial market speculation this month that currency devaluation was a real risk in one or more of the three Baltic states.

“No, devaluation is impossible in all three Baltic countries. I don’t think this could be beneficial for any currency that is pegged to the euro,” Sadzius said in an interview on the sidelines of a meeting of EU finance ministers.

He vowed to continue sound fiscal policies and reiterated Lithuania would seek to join the euro zone as soon as possible. Lithuanian officials have suggested 2011 could be the earliest date for euro adoption.

The global credit crunch and falling stock prices did not make a sharp economic correction any more probable in Lithuania or other Baltic republics, Sadzius said.
“I don’t think this could be a direct reason for a hard landing, because it depends on the policy stance conducted by separate governments in separate countries,” he said.

“This turmoil on financial markets affects the situation of private firms, private entrepreneurs, those who are investing their money in different parts of the world. There will be as many unhappy people in Lithuania as in other European countries.”
Credit rating agencies have cited a widening current account deficit as one of the signs that Lithuania’s economy risks overheating and a hard landing.

Lithuania’s current account gap widened by 79.5 percent to 1.4 billion litas ($594 million) in November from the previous month and was up 11.5 percent on the year.
Meanwhile, Lithuanian inflation recorded its biggest jump in 10 years last month and officials have said the rate could hit 10 percent in the first half of 2008.

In Estonia, the year-on-year rise in consumer prices was 9.6 percent in December, the biggest jump in more than nine years and Latvian consumer prices surged by 14.1 percent. (Editing by Dale Hudson)