RIGA - The new agreements with the International Monetary Fund (IMF) and the European Commission (EC) outline tough deadlines and stringent conditions have been set for the Latvian government to receive further funding. The parliamentary elections which are going to take place in October this year add insult to injury and make the situation even worse as some leading politicians seem to not want to take responsibility and carry out the requirments.
The Baltic Times has obtained access to the unpublished second supplement to the Memorandum of Understanding with the European Community and the Letter of Intent with the IMF. Considering the fact that the government exceeded the allotted time and delayed the 2010 budget amendments last summer and the 2010 budget approval, this time tough deadlines are set. Inter alia, this year’s state budget planning has to be started right now and the document’s draft should be ready by the middle of the year. All measures are to be discussed with the lenders and the National Tripartite Cooperation Council made up of business organizations, trade unions and local governments.
Conditions include that no money may be spent without the lenders’ permission. If any additional finances appear it has to be spent on reducing the budget deficit. There are three more options to spend this amount: the social safety net, on labor market activation or to absorb EU structural funds.
According to the agreements, taxes should not be decreased during the next few years. The value added tax rate should be increased from 21 percent to 23 percent and progressive income tax should be imposed in case the budget income plan is not fulfilled. Comprehensive car tax reform based on environmental benefits will be imposed, as well as changes to the real estate tax, concerning the interests of people who are below the poverty line.
A detailed plan of Parex bank restructuring has to be submitted to the EC by the end of March 2010. By this time, a debt restructuring strategy has to be launched for people who lost their jobs and now have difficulties with paying back their mortgage. To make sure the taxpayers’ money is spent properly, no more than 82 million lats (117.1 million euros) in total can be spent for this purpose, with no more than 31 million lats spent each year.
The biggest coalition member, the People’s Party, refused to vote for these agreements in the government. However, they would not raise any objections if Prime Minister Dombrovskis, who is a member of New Era, signs it.
“The promises given to the international lenders by the Latvian government are the squandering of Latvia’s future. It is not possible to predict what else Dombrovskis is ready to put in pledge to get money which will help this government survive till the parliamentary elections,” said the leader of People’s Party, Andris Skele.
“We consider that no taxes could be increased during the recession. Dombrovskis’ fiscal policy made the plight of Latvian people and businessmen even worse,” said Vineta Muizniece, the head of the People’s Party faction in the parliament.
However, New Era leaders are sure that People’s Party is doing nothing but throwing a monkey-wrench into the machinery. “They just want to destabilize the government and increase their popularity which is now a little bit above zero thanks to the People’s Party’s members’ relatives and families. They have nothing to offer to the electorate in October. Their efforts are just ridiculous,” said Dzintars Zakis, the head of New Era’s parliamentary faction.
“We understand very well that the conditions of the IMF and the EC are tough but we have little choice. Nobody else is ready to lend Latvia money on such favorable terms. Neither is China going to finance our budget deficit. Take a look at Lithuania whose authorities decided to be independent and borrow at high interest. The country is going to face even worse crisis this summer than Latvia did.”
Although nobody feels sorry for New Era’s shaky position analysts agree that the People’s Party’s behavior is destructive.
“It is obvious Skele is not back into politics with the purpose of helping Dombrovskis to stabilize and develop Latvia’s economy. His plan to get into power as soon as possible is quite clear. He needs such statements to say afterwards that he had proposed better measures for defeating the crisis but was ignored by Dombrovskis,” said Ivars Ijabs, a lecturer at Latvian University and a political analyst.