Lembergs draws line in sand

RIGA - The Latvian government will reach agreement with the international lenders on the budget amendments, said Prime Minister Valdis Dombrovskis (Unity) after another meeting with the lenders’ representatives on April 12, reports news agency LETA. There is “good progress” in the talks, and the main agreement on amendments to this year’s budget and consolidation targets for the 2012 budget will be reached “tomorrow or the day after tomorrow,” he added.

International Monetary Fund mission head in Latvia, Mark Griffiths, also said that the talks with the government were proceeding smoothly and an agreement on these matters could be reached in the coming days. Griffiths declined to comment on the possible budget consolidation amounts for next year, as negotiations still continue.

During work on reducing budget spending for next year, the government could also consider freezing or downsizing the public sector’s salary fund, suggested Finance Minister Andris Vilks (Unity) on April 11. Such a reduction would concern the entire public administration, and it will be evaluated as one of the possible measures in drawing up the 2012 state budget. It is clear that the budget will have to be consolidated and, if the Union of Greens and Farmers still has the “red lines” that it does not wish to cross regarding the social budget, the cuts will have to be made elsewhere, explained Vilks.

The talks with the international lenders on budget consolidation measures for next year are to conclude this week, but the consolidation amount will be completely clear only in August, when the newest economic data will be released, stressed Vilks.

Last week Greens and Farmers Union members met with the international lenders and “reminded” them about the “red lines” that the party will not cross regarding next year’s national budget, said Ventspils Mayor Aivars Lembergs (For Latvia and Ventspils) and Greens and Farmers parliament leader Augusts Brigmanis. The Greens and Farmers emphasized that pensions and agricultural subsidies are “untouchable.”

The talks must continue so that Latvia would be able to achieve “beneficial terms,” they said. The lenders do not insist on specific budget consolidation measures, as the government decides this, noted Lembergs. The sides agreed that linear budget cuts might not be the best solution, said Brigmanis.
The party also objected to reduction of the budget deficit to 2.5 percent of gross domestic product (GDP), and pointed out that the current loan system envisages a 3 percent budget deficit. The Greens and Farmers Union still insists that the government must continue discussing prolongation of the international loan repayment, because “Latvia will not be able to repay it in 2014 and 2015.”

Griffiths has said that so far, Latvia had been able to successfully implement the international loan program, that the situation in Latvia was improving and that the international financial markets viewed Latvia much more favorably now. He stressed that it is important that the Latvian government continue work and reduce the budget deficit to under 3 percent of gross domestic product next year.

Concerning repayment of the bail-out loans, Dombrovskis on April 6 said that “Currently, the question is not whether Latvia can borrow somewhere else on better terms than from the IMF, but whether Latvia will be able to return to the international financial markets.”

“If we want to remain on the IMF program forever, then the international market is of no importance,” said Dombrovskis.
The IMF program ends on Dec. 22 this year. If extending the debt repayment deadline is discussed with the lenders, the interest rates will change as well, said Dombrovskis.

The prime minister emphasized that if Latvia is able to return to the international financial markets, it will be a positive signal for the investors, and loans will become available to more businesses. Therefore, Latvia intends to borrow money on the international capital markets to restructure its debts, as the improving economic situation will present Latvia with good borrowing conditions.