. the structure of latvian gdp is in line with that of the developed countries : the shares of agriculture and manufacturing in total value added declined from 10 % in 1995 to 4 % in 2001 and from 22 % to 13 %, respectively, while the share of services increased from 56 % to 63 %. latvia's export structure by trade partner indicates expansion in the share of exports to the eu : 61. 2 % of total exports in 2001 went to the eu member states. although accession countries are not required to meet the maastricht convergence criteria, we have set fulfilling the maastricht convergence criteria as a medium - term target in the area of nominal convergence. already now latvia complies or is close to complying with most of them. – in october, consumer price inflation was 1. 6 %. – gross government debt was only 15. 0 % of gdp at the end of 2001. – there was no budget deficit in 1997 and 1998. in 2000 and 2001, the budget deficit was below the maastricht ceiling, i. e., 3 % of gdp. – yields on government bonds, while still higher ( 5. 54 % for 5 - year treasury bonds in july 2002 ) than the maastricht criteria, are on a downward trend and their maturity continues to increase. we expect to be able to meet the requirements in the medium term. – the lats has been pegged to the sdr basket of currencies at a constant exchange rate since 1994. latvia has thereby shown that it is ready and able to meet the currency stability criterion. during the pre - accession period, the exchange rate peg of the lats to the sdr will be maintained. this peg has served the bank well and has ensured narrower exchange rate fluctuations than a possible peg to any single currency. in addition, the composition of latvia's foreign trade by settlement currencies closely resembles the composition of the sdr basket, with the us dollar and the euro being the major component in both. the bank of latvia will be prepared to join the european system of central banks at the time of latvia's accession to the eu. the structure and objectives of the bank of latvia, the degree of its independence and its set of monetary policy instruments are fully in line with those defined for the european system of central banks.

and the euro ( fig. 3 * ). with that and the principles just mentioned in mind, the government and the bank of latvia have worked together to develop a three - stage strategy for the introduction of the euro ( fig. 4. * ) : at the beginning of 2005, the lats is pegged to the euro. latvia will strive to join the exchange rate mechanism ( erm ) ii soon thereafter. • in 2007 - spring, at the earliest - the eu institutions give their evaluation of latvia ’ s readiness to join the euro area • after receiving a positive evaluation, latvia would expect to receive an invitation to join the emu. then, at the beginning of 2008, the introduction of the euro will begin. let us explore each stage in more detail. first - about the first stage that is only a couple of months away. that is - about the change of the lats ’ peg and the chosen exchange rate level between the lats and the euro. we have considered all arguments and summed up all the pluses and minuses. as most of you may know, the bank of latvia has made a decision to peg the lats to the euro on january 1 of 2005 in accordance with the market rate. this market rate would be registered on the last business day, december 30, 2004. by pegging the lats to the euro, the bank of latvia will neither increase nor decrease the value of the lats : it will neither be devalued, nor re - valued. use of sdr formula in setting lats exchange rates to better understand the basis for our decision, it might be helpful to remind ourselves of the mechanism whereby the exchange rate between the lats and the euro is set at present. as you know, the lats is pegged to the sdr basket of currencies, the imf unit of settlement - the bank of latvia ’ s official exchange rate between the lats and the sdr is 0. 7997 : 1. it has remained unchanged since the beginning of the peg in february 1994. taking into account the exchange rates between the currencies in the sdr basket and the fixed exchange ratio between the lats and the sdr basket, the official lats ’ rate against the other currencies, including the euro, is also determined every business day. since the mutual exchange rates of the principal world currencies, which are all part of the sdr basket - the us dollar,