Building basement walls

I am planning on covering below surface basement 2x4 stud walls with paneling and interlocking stained pine wood. Do I \"have to\" insulate and vapor barrier these walls? I do not currently have any water or mold problem and the temperature is a constant 68 degrees and around 38% humidity. The temp is OK but I don\'t want to develop a mold or mildew problem. Thanks.

Jerry,

When we finish a basement, we always insulate the walls with kraft faced R-13 insulation.  The kraft paper, towards the warm side, will act as your vapor barrier.  In our area, the code requires this.  It's a good idea to hold your studs at least 1/2" off the foundation walls and leave a 1/2" space between the top wall plate  and the floor joists overhead.  This will allow for the basement floor to "float" freely without affecting the first floor joists.   Make sure you get a return air register in the newly finished space and make sure you have sufficient combustible air if you have a gas fired furnace.