RIGA - Lawmakers threw more fuel to the inflation fire last week when, after an extraordinary session of Parliament, they ap-proved 65 million lats (99.5 million euros) in additional budget expenses.
The government, led by Prime Minister Indulis Emsis, won support from leftists in the legislature for the amendments thanks to the generous social nature of the additional expenses. As a result, farmers will receive 20 million more lats, teachers 9.6 million and health care workers 7.5 million.
The extra expenditures were possible due to Latvia's booming economy, which has brought a windfall in additional revenues, with the government able to keep the budget deficit to 2 percent of GDP.
The right-wing opposition attacked the amendments, claiming the surplus cash in the economy would immediately spur inflation, which in Latvia is already dangerously high at 6.7 percent.
Still, Finance Minister Oskars Spurdzins voiced satisfaction over the budget amendments. "I am tired, but I am happy," he said.
He said he was convinced that the additional expenses would not expand the deficit since the amendments were balanced between investment and social expenses.
He did not think that they would fuel inflation.
After the amendments budget revenues were fixed at 2 billion lats and spending at more than 2.1 billion lats, with the fiscal deficit amount to 15.1 million lats.
The International Monetary Fund has criticized Latvia for not using the additional revenues to bring down the deficit to 1.5 percent - 1 percent of GDP - as inflation has threatened to spiral out of control in the Baltic country.
The Bank of Latvia said on Aug. 27 that it could raise its annual inflation forecast to 5.5 percent - 5.7 percent from 4.5 percent due to a higher-than-expected pricerise in July.
In July annual inflation reached a staggering 6.7 percent, the highest level recorded over the past years.
In 1997 consumer prices rose 8.4 percent, while in 1998 they went up by only 4.7 percent.
"The fact that the government at this point is not reducing the budget deficit means the government is not putting breaks on inflation and may even promote it," said Martins Gravitis, a central bank spokesman.
Government policy has left the Bank of Latvia alone on the "battlefield" against rising prices, he said.
Spurdzins has repeatedly rejected the bank's concerns, saying the bank "spoke about the worst times expected possible." The minister said Latvia conformed to all Maastricht criteria except inflation, and it was unlikely Latvia would not conform to these criteria at the end of the year.
Indeed, consumers are also feeding the inflation frenzy, as recent statistics show that wages are growing faster than prices.
The national statistics office reported last week that prices in the second quarter grew 5.8 percent year-on-year while average gross monthly wages rose by 9 percent and net wages by 8.2 percent.
In the second quarter of this year the average gross monthly wage in Latvia was 208.7 lats and the average net wage 148.5 lats.