Governor, Bank of Latvia Ilmars Rimsevics of Latvia

LONDON --Latvian central bank governor Ilmars Rimsevics said Monday that the Baltic state's economy could shrink both this year and next, but that robust export growth should continue to support activity.

The government's decision to launch talks with the International Monetary Fund for the stabilization of the macroeconomic situation in the country is a farsighted move, which will prove to be very useful in case the volume of money in global and the Latvian economy decreases more yet, as the President of the Bank of Latvia Ilmars Rimsevics said in an interview on the Latvian State Radio this morning.

Rimsevics had a meeting with Prime Minister Ivars Godmanis (Latvia's First Party/Latvia's Way) today to discuss the current economic situation.

Rimsevics said after the meeting that economic development continues as planned, and that the economy is cooling off, as the Bank of Latvia had forecast.

RIGA (AFX) - Latvia's central bank governor Ilmars Rimsevics said it is unlikely the republic will be ready to adopt the European single currency in 2008, BNS news agency reported.

Rimsevics said the current account deficit, which with inflation had been one of the hallmarks of Latvia's previous overheating, would come to 15 to 16 percent of gross domestic product this year after 23 percent last year.

Rimsevics said annual inflation, which eased slightly to 17.

Rimsevics expressed concern about a continuing fall in industrial output, especially as he hoped exports would be the main force for growth in the future.

Rimsevics said there was a risk of a further wage-price spiral in which workers, seeing prices grow, demand higher wages.

Other new EU members such as Bulgaria and Hungary have seen the price of insuring their credit risk increase but Mr Rimsevics says its currency peg and the structure of its banking sector protects countries such as Latvia from financial turbulence.

Mr Rimsevics said the economy was on track for an orderly “soft landing” after a slowdown in bank lending growth.

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.

the lat's SDR peg should remain in place until then.

two coalition parties -- the People's Party and For Fatherland and Freedom.

85 percent of gross domestic product is not realistic and will actually balloon to 4 percent of GDP, Rimsevics was quoted as saying by the Diena daily in an interview published on Friday.

Ilmars Rimsevics has been Governor of the Bank of Latvia since December 2001, after holding key central bank posts for almost a decade, including two consecutive terms as deputy governor.

Rimsevics has been a part of the team overseeing Latvia's monetary policy when it reintroduced the national lat currency 10 years ago and has a six year term now to manage it as this Baltic country joins the European Union and gears up for eventual adoption of the euro.

Rimsevics said only the central bank had the right to change the exchange rate.

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.