RIGA - Latvia has made positive steps towards stabilization of the national economy and sustainable reform policy, EU Commissioner for Economic and Monetary Affairs Joaquin Almunia said.
His comments came following a recent meeting with Latvian Prime Minister Valdis Dombrovskis in which Latvia's progress in implementing its economic stabilization plan, proposed budget amendments and structural reforms was discussed.
The Latvian government is preparing plans to adopt amendments to this year's state budget in line with its obligations to international lenders which bailed out the troubled Baltic country with a 7.5 billion euro loan last year.
Latvia is due to receive a loan payment of 1 billion euros from the European Commission in June.
However, Almunia said Latvia must comply with promised budget and structural reforms if it is to receive the latest loan installment.
In March the International Monetary Fund (IMF) withheld a scheduled 200 million euro payment from Latvia after the government failed to meet strict loan conditions.
Further payments could also be in jeopardy should the government fail to trim its budget deficit to about 5 percent of gross domestic product.
As part of the bailout deal, Latvia pledged not to run a budget deficit in excess of 4.7 percent of GDP for 2009, but has been struggling to meet its obligations in light of the continued economic downturn.
Dombrovskis is expected to discuss the implementation of tough new budget amendments with representatives of the foreign media at a press conference on May 13.
Latvia's GDP fell by 18 percent in the first quarter of this year and there are fears the country could face bankruptcy should the government fail to secure the next loan installment.
Significant reduction of expenditures is necessary to fulfill the stabilization plan agreed with international lenders, which serves as a basis to receive further financial aid payments.
This step is also seen as crucial to the recovery of Latvia 's economy and stabilization of the country's financial situation.
Dombrovskis has previously warned the latest round of budget cuts will be the most severe.
ON THE AGENDA
The government's harsh austerity measures have sparked outrage in Latvia and further cuts are now imminent.
Public sector workers across the board are facing wage cuts of a further 20 percent as the government attempts to slash public spending.
The move has sparked protests by teachers and student bodies over concerns the severe cuts could downgrade the quality of education in Latvia.
However, despite ongoing economic turmoil Almunia said the European Commission remained optimistic the Latvian government would fulfill its obligations in line with its economic stabilization program.
"We support the government's work aimed at stabilizing its finances and implementing reforms in the most essential areas 's public administration, health care and education. Public support is of great importance," said Almunia following the meeting between Dombrovkis and EU officials.
"The Commission also encourages Latvia's Parliament, political parties and social partners to provide their contribution in this important work in order to regain economic growth, social development and to ensure the pre-conditions for joining the euro zone," he said.
Latvia must amend the budget and reduce inflation if it is to succeed in joining the euro zone by 2011.