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The International Monetary Fund (IMF) is not seeking a devaluation in Latvia and an agreement to keep the currency peg to the euro remains in force, Prime Minister Valdis Dombrovskis and the Fund said on Thursday. Dombrovskis was explaining earlier remarks, quoted by Baltic news agency BNS, where he said the IMF had no objection to a devaluation, but that the European Commission, central bank and government were against it.
Speaking to reporters after meeting a team from the IMF, he said his earlier comments had been "historical" and were about the original negotiations with the Fund, which eventually led to the Baltic state winning a bailout worth 7.5 billion euros.
"The current agreement of an unchanged exchange rate remains in force," Dombrovskis said. He said the Fund had not raised the issue of devaluation in the new set of talks. His earlier reported comments had raised doubts that the Fund remained in agreement on keeping the currency peg. In Washington, IMF spokeswoman Caroline Atkinson said the talks in Riga were primarily about fiscal policy.
"An important plank of the program is the maintenance of the existing exchange rate," she added. Latvia wants permission from the IMF and European Commission to raise the budget deficit this year to 7 percent of gross domestic product (GDP) from the 5 percent agreed when Latvia took the IMF-led rescue. Dombrovskis said no concrete budget deficit figure was mentioned during the talks and that the focus had been on a medium-term goal of getting the deficit down to 3 percent of GDP in 2011 so that Latvia could join the euro zone in 2012.
In order to do this, Latvia had to carry out structural reforms, he said. The central bank has said Latvia cannot allow the deficit to rise to 7 percent of GDP if it wants to adopt the euro in 2012. Mark Griffiths, leading the IMF team, said the talks with Dombrovskis had been constructive and had been an opportunity to meet the prime minister, who took office earlier in March.

Copyright Reuters, 2009

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