Riga - The chairman of one of Latvia's leading drinks manufacturers said Thursday that a combination of increased duty on alcohol and the Baltic country's bleak economic outlook could drive drinkers to produce their own moonshine in illegal stills.

"Rapid excise tax and VAT rate increases will lead to rapid decreases in sales volumes. It does not mean that people will reduce their consumption of alcoholic drinks. This situation will favour the production of illegal alcohol," said Karlis Andersons, chairman of Latvijas Balzams, in a note to the Riga stock exchange.

Andersons said the rise in excise duty on alcoholic beverages would backfire. The Latvian state would lose income as drinkers turned to illegally-produced hooch or bought their booze abroad at lower prices, he added.

"Also expenditures will increase connected with healthcare for people who have consumed illegal and low-quality alcoholic drinks," Andersons predicted.

If correct, Latvia could witness a return to a period in the early 1990s when illegal distilleries flourished in the wake of the collapse of communism and state-produced vodka. However, with no guarantee of quality, tales of people permanently damaged and and even killed by drinking deadly moonshine became commonplace.

Andersons' own company, which is named after the potent herbal liqueur that is a Latvian national icon and forms part of a 130- strong product portfolio, said he expected sales to fall by 15 per cent in 2009 and that despite increased tax, his company's contribution to the state treasury would be smaller than in 2008.

Riga has increased excise duty and other taxes on a range of products including alcoholic drinks, tobacco, books and fuel as part of its attempt to raise revenues in the recession-hit Baltic state.

Latvijas Balzams posted profits of 3.16 million lats (6 million dollars) during the first nine months of 2008. (dpa)