RIGA - The Latvian Finance Ministry plans to ask the International Monetary Fund (IMF) for a loan of about 5 billion euros to help stabilize the economy.
Finance Minister Atis Slakteris announced on Dec. 2 that although the government had yet to approve this plan, experts agree that 5 billion euros would be the optimal sum for balancing the economy.
"Probably we might do without a smaller sum and will do with a smaller sum. It depends on the negotiations with the EC and IMF, on the common understanding," he said.
Slakteris went on to tell journalists that "the government has not decided and it is not in a position to decide on this. This will be decided in the talks. Experts of the Finance and Economics Ministries, and the Bank of Latvia, as well as scientists, believe that it would be useful to find an additional 3 billion to revive the economy and lending."
Slakteris has also spoken to a panel of European experts analyzing the situation and drawing comparisons to Iceland and Hungary.
"What I have told experts are estimates about our needs. One [portion] would be 2 billion euros to finance possible syndicated loans and the budget deficit," said Slakteris.
Latvian Prime Minister Ivars Godmanis, however, could not confirm that Latvia might ask the IMF and EC for 5 billion euros.
The prime minister said that the money from the IMF and EC would be a loan, not a subsidy.
"Conditions of the loan will definitely play a major role. It is not in our interests to borrow the maximum. It is not the case and we do not want this," Godmanis said.
There are several critics of the 5 billion euro plan, most vocally from the New Era party.
Krijanis Karins, a founder of the New Era party and a parliamentarian, said that the plan is not known by anyone and called for the resignation of Slakteris. (see story Page 3)
"There is a lack of transparency. Slakteris has displayed little understanding of what an IMF loan should be used for and has announced that 2 billion euros would be used to satisfy budget expenses, not telling anyone what these expenses might be," Karins told TBT.
However, the international credit rating agency Fitch Ratings confirmed that Latvia may need 5 billion euros in a finance package from the IMF and other lenders.
In a report published on Dec 2, Fitch Ratings Sovereign Group reported that something must be done to stabilize the Latvian economy.
"Latvia needs a substantial international support package to stabilize its economy. If Fitch judges that the support package is not of sufficient size, design and credibility to forestall a severe economic and financial crisis then it would further downgrade Latvia's ratings," reported Eral Yilmaz, Associate Director in Fitch's Sovereign Group.
Latvia has entered into official talks with the EC and the IMF for support in stabilizing the macroeconomic and financial situation. The Finance Ministry has worked out an economic stabilization plan that has yet to be approved by the government.
Slakteris told reporters that he hoped talks with the IMF would conclude by the end of 2008.
"I would like to hope that we will be able to discuss everything and get approved by the parliament quickly enough, [before] Christmas," said the finance minister.
The economic stabilization program contains several measures aimed at boosting Latvia's economic competitiveness, balancing the government's plans, as well as reducing the effects of various economic risks.