be devalued, the burden on those loan recipients whose liabilities are in euro but income in lats would increase dramatically : it would take more money to buy a euro. anyone who speculates, albeit theoretically, about devaluation of the lats, should be aware that it would lead to a dead - end. whereas foreign experts keep devaluation in mind as an instrument that can be applied if necessary to restore the ability to compete, my opponent goes much further than that : he claims that devaluing the lats is unavoidable under the conditions of excessive inflation and loss of ability to compete. on the contrary : a stable and unchangeable lats exchange rate in under such conditions serves and will continue to serve as an automatic stabilizing and inflation - suppressing factor. i would also like to remind any hotheads that only the bank of latvia can make the decision to devalue : not the government. during my tenure as the chief officer of the bank of latvia it will not happen. on 31 january, the foreign currency reserves of the bank of latvia amounted to 2. 4 billion lats. the bank ’ s foreign reserves exceed the amount of lats in circulation and thus we would be quite ready and able to exchange even the entire amount of lats in circulation for foreign currency in accordance with the exchange rate as set by the bank. mr. hansen is fully aware of this. in conclusion, i would like to express confidence that the discussion about balanced development of the latvian economy in the long term will continue and that the set of measures that will be undertaken in march under the auspices of the minister of finance and aimed slowing down inflation will prove successful.

ilmars rimsevics : standing firm against manipulations with lats'exchange rate article by mr ilmars rimsevics, governor of the bank of latvia, published in the daily diena on 16 february 2007. * * * economists are currently discussing ways to improve the ability to compete of the latvian economy and they are right to do so because it is being undermined by high inflation. morten hansen from the riga school of economics has also devoted this issue a great deal of thought, sharing some of his insights with the readers of the newspaper diena ( 10 february ). the latvian economy is still the fastest growing economy in the european union and that should make us happy because our standard of living is raised. the downside, from the macroeconomic perspective, is that the speed at which we are traveling can be compared to driving at 200 kilometers an hour, because it is accompanied by high inflation, record high prevalence of imports over exports ( current account deficit ), decreased ability to compete, a fast growing foreign debt. for quite a while now, the main problem of the latvian economy has been the overly high domestic demand that exceeds supply ; the economists call it “ overheating ” of the economy. the budget deficit is also too high for this juncture in our economic development : we are not saving for the moment when the pace of the economy will abate. estonia, where the situation is very similar, last year recorded a budget surplus of 3 % of gdp. ) if we fail to have a firm grip on the steering wheel and we dismiss the danger of driving too fast, our breakneck speed can land us in a ditch! we can only regret that mr. hansen has not applied his theoretician ’ s savvy to come to the aid of the latvian economic policy makers : to specify the list of tasks that would allow the excessively rapid development to slow down so that latvia would continue to develop in the long term with a yearly growth of 6 - 7 % instead of running the danger of overheating as is obvious from the estimates of the last quarter of last year. it would have been wonderful if mr. hansen had made use of his teaching skills, which involve the ability to get things across with ease, to remind us that in the marathon distances – in our case, approximating the level of european standard of living – sprinter ’ s tactics are of no use. in such a list, there would be tasks that produce immediate