RIGA - A 200 million euro loan installment has been withheld after negotiations between the Latvian government and the International Monetary Fund (IMF) on widening the budget deficit broke down on April 2.
Speaking to media following the announcement, Prime Minister Valdis Dombrovskis pointed the finger at the previous government for failing to implement budget amendments.
A previous IMF mission was forced to cut short its visit to Riga after the previous government lead by Prime Minister Ivars Godmanis collapsed on Feb. 20.
"A payment was due in March but that did not come as the previous government did not prepare the corresponding budget amendments," Prime Minister Valdis Dombrovskis told media.
Dombrovskis said meeting the conditions of the international loan remained the government's top priority, conceding there was no adequate back up plan.
"We must focus on Plan A 's on ensuring that we receive the international loan. Anyway, a Plan B will be very insufficient. It is important to understand that the IMF as a lender is, in a way, the last hope. It is usually approached by countries which cannot borrow money somewhere else. Therefore it would be silly to hope that in case the IMF would not lend us 7.5 billion euro or some other amount of money we could ask this money from another lender," he said in an April 2 interview with Dienas.
"So we must continue cooperation with the current lenders. We should also keep in mind that the loan facility offered by the lenders is considerable 's it accounts for 35 percent of GDP," he said.
Finance Ministry spokeswoman Diana Berzina told The Baltic Times the delayed installment would likely be received in May or June.
The new government, which took over on March 12, had been hoping to persuade the IMF and the European Commission to allow a budget deficit of 7 percent of gross domestic product.
Under the terms of a 7.5 billion euro bailout package from the IMF and other international lenders, Latvia had agreed to keep its budget deficit to within 4.7 percent of GDP this year and at 3 percent in 2010.
However, the government was forced to revise its budget deficit after previous forecasts proved overly optimistic.
Latvia received the first installment of 590 million euros at the end of December last year.
The next payment of 1 billion euros is due to be paid by the European Commission.
Dombrovskis had previously warned Latvia could face bankruptcy by the end of June if it failed to receive scheduled loan payments agreed in December.
Berzina said a new budget deficit target had not yet been set and would depend on the outcome of planned cuts across the public administration system.
"We cannot yet say what the deficit target will be. The government is accepting submissions [from ministries] for different scenarios on how structural reforms will be carried out and these will be evaluated after April 17," she said.
Under its obligations to the IMF the government plans to implement a series of painful structural reforms across the entire sector, which is likely to see salaries slashed by up to 20 percent.
Latvian ministries have until April 17 to submit their proposals. This includes the reorganization of subordinate institutions, staff reductions, re-evaluation of budgetary programs and the centralization of management functions.
At the same time working groups are currently examining the functions of the public administration and identifying areas of excessive expenditure. Parliament is expected to approve the budget amendments in June.
