3.1 billion euro EC loan approved for Latvia

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

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

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

The financial assistanceand the policy program will enable Latvia to withstand short-term liquiditypressures while improving competitiveness and supporting an orderly correctionof imbalances in the medium term, hence bringing the economy back on a soundand sustainable footing. This will also help meet the conditions for theadoption of the euro.

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

Addressing the EU ministersin Brussels, Slakteris said he appreciatedcooperation with the European Commission during the drafting of the economicrecovery program for Latvia. Development of democraticprocesses in the country also cannot be seen as an obstacle to approval of theloan, underlined the Latvian finance minister.

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

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

The European Commission,the International Monetary Fund (IMF), the World Bank, the European Bank forReconstruction and Development (EBRD) and a number of European Union memberstates in December 2008 agreed in principle on providing a 7.5 billion eurostabilization loan to Latvia.

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