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UPDATE 1-Lithuania to seek IMF aid if needed-report

Published 07/24/2009, 11:55 AM
Updated 07/24/2009, 12:00 PM

* Lithuania finance minister: would seek IMF help if needed

* IMF hails further budget cuts

* Economist sees Lithuania needing IMF aid eventually

(Adds quotes economist, IMF)

VIENNA/VILNIUS, July 24 (Reuters) -Lithuania would take financing help from the International Monetary Fund if needed, the finance minister was quoted on Friday as saying, as the IMF hailed the country's parliament for passing spending cuts.

The crisis in neighbour Latvia, which has been battling to secure aid agreed with the IMF and EU as it tackles problems over budget funding, showed the importance of securing balanced finances, Lithuanian Finance Minister Ingrida Simonyte said.

"If financial help becomes necessary because of a dramatic worsening (in the economic environment), we would of course resort to the IMF. I see this as pragmatic," Simonyte told Austrian daily Die Presse in an interview.

The Lithuanian government has several times said it does not rule out turning to the Fund for help, as Latvia had to do.

But Lithuania took heart from the fact it managed to raise 500 million euros in a Eurobond recently.

This week, its parliament also backed further budget cuts to help reduce the deficit.

In Washington, the IMF said these reductions were a step towards placing Lithuania's finances on a sounder longer-term footing and were needed to address tight financing conditions.

"It was an important step towards placing the country's budget finances on a sounder longer-term footing and was necessary to address tight financing conditions," Catriona Purfield, the IMF's mission chief for Lithuania, said in a statement.

But Morten Hansen, a Danish economist who is professor of economics at the Stockholm School of Economists in Riga, saw similarities between Latvia and Lithuania.

"Yes, Lithuania has not applied yet to the International Monetary Fund, but, I have no doubt, it is just a matter of time. One day you will wake up in the same situation as in Latvia," Hansen told weekly Lithuanian magazine Atgimimas.

Hansen was one of the few economists to predict tough times for Latvia, saying before its crisis broke last year that it faced a hard landing from its property and credit bubble.

He had also warned the Latvian government it should stop running budget deficits when GDP was expanding in double digits.

Simonyte said a devaluation of Lithuania's litas currency was "absolutely no option", repeating previous comments from Lithuania's prime minister.

Investors fear that Latvia's economic woes will force it into a devaluation of its lat currency . All three Baltic states have their currencies pegged to the euro. Simonyte said Lithuania needed to join the euro as soon as possible but that it would not rush into membership if it would cause severe damage to the country's economy. (Reporting by Sylvia Westall in Vienna and Nerijus Adomaitis in Vilnius; Editing by Andy Bruce)

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