3.1 billion euro EC loan approved for Latvia

Jan 20, 2009
TBT Staff

RIGA- The European Union (EU) finance ministers at their meeting on Jan. 20 agreed to provide medium term financial assistance to Latvia up to 3.1 billion euro, reported the Latvian Finance Ministry.

The medium term financial assistance will be the loan of the European Community to Latvia.

The financial assistance will be distributed in six installments during the next two years.

The financial assistance and the policy program will enable Latvia to withstand short-term liquidity pressures while improving competitiveness and supporting an orderly correction of imbalances in the medium term, hence bringing the economy back on a sound and sustainable footing. This will also help meet the conditions for the adoption of the euro.

"We have worked very hard so that in conditions of rapid global economic decline Latvia would be able to get a credit facility for balancing the national financial situation over the next three years. Integration in the EU has in this tough situation enabled Latvia to maintain stable national currency and guide the economy towards recovery in a controlled manner," Latvian Finance Minister Atis Slakteris said in a statement.

Addressing the EU ministers in Brussels, Slakteris said he appreciated cooperation with the European Commission during the drafting of the economic recovery program for Latvia. Development of democratic processes in the country also cannot be seen as an obstacle to approval of the loan, underlined the Latvian finance minister.

The resolution about a loan to Latvia outlines the economic policies that the Baltic state must follow to receive the money. Those terms include development of a medium term program under which the national budget deficit must be reduced to less than 3 percent of GDP in 2011.

Other terms include keeping the 2009 national budget deficit below 5 percent of GDP. Latvia will also have to cut salaries in the public sector by 15 percent, reduce the number of public administration employees, reform its budget management and wage policies, ensure stability of the banking sector, perform structural reforms and implement the EU-funded projects.

The European Commission, the International Monetary Fund (IMF), the World Bank, the European Bank for Reconstruction and Development (EBRD) and a number of European Union member states in December 2008 agreed in principle on providing a 7.5 billion euro stabilization loan to Latvia.

The IMF will lend 1.7 billion euro, the European Commission 3.1 billion euros and the World Bank 400 million euro. Sweden, Denmark, Finland and Norway will lend Latvia up to 1.8 billion euro, while other EU members, including the Czech Republic, Poland, and Estonia, would provide 100 million euro each, and the EBRD would lend up to 200 million euro.

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