Latvia Central bank confidence on IMFs loan to add currency stability

The Chief of Latvia's central bank said on Friday that aid from the International Monetary Fund would boost the stability of the country's currency, the lat, rather than undermine it.

The prime minister said he saw no worries at the moment over the currency after a weekend rush of people selling it for euros.

The government on Thursday decided to seek help from the European Commission and the IMF as the economy has slid and the government had to take over the country's second-largest bank.

Latvia would become the second EU country after Hungary to get a bail out.

Central bank chief Ilmars Rimsevics said the amount of money which Latvia would need from the Fund would be known within about three or four weeks, when the government will draw up an economic plan and hold talks with the Washington-based lender.

"This money can only be an extra buffer, a cushion, to the stability of the lat and not the other way around," Rimsevics told public radio when asked whether the Fund could ask for the lat to be devalued or its peg changed.

Prime Minister Ivars Godmanis, speaking at a Baltic prime ministers meeting in the Estonian town of Tartu, said the sum would not be in the billions.

Asked about a newspaper's report that 1 billion euros could be needed, he said: " ... we have just started these talks with the European Commission and the IMF about some reserves' support."

"We are seeking additional help for our reserves. We will not be borrowing billions of euros," he told reporters.

He also saw little threat to the currency.

"I have to say that we have had such waves of rumours (about a devaluation) both in February and now before our national holiday. It is over now. There is no more. Our national bank has enough reserves."

The lat is pegged to the euro at a central rate of 0.7028 euros, with a 1 percent fluctuation band. It has been stuck at the weak end of its band, 0.7098 euros, for six weeks and the central bank has spent more than 600 million euros ($751.5 million) to support it.

The bank has more than 4 billion euros of reserves.

Rimsevics said the government would draw up a plan for economic steps and present it to the Fund, which would then decide how much extra money the government would need.

"We will know that at the earliest after three or four weeks," Rimsevics said.

Latvia got into trouble after state revenues began to slide due to the economic downturn and then it had to take over second-largest bank, Parex Bank, to save it from a run on deposits. The state is guarantor for more than 700 million euros of Parex syndicated credits, which will have to repaid if refinancing efforts fail.