World Bank president advises long-term reforms

  • 2010-08-18
  • By Raquel Dura Lahoz

KING’S COUNCIL: Valdis Dombrovskis (right) listens as Robert B. Zoellick expounds upon Latvia’s so far successful efforts on stabilizing the economy.

SIGULDA - Latvia needs to continue implementing structural long-term reforms to achieve recovery of the country’s economy, declared World Bank President Robert B. Zoellick in his three-day visit to the Baltic country last week. On his visit he met with Latvian President Valdis Zatlers and Latvian Prime Minister Valdis Dombrovskis (New Era), among others. The World Bank president arrived in Latvia to discuss ways the World Bank can offer support to the country, and to evaluate the measures that the Latvian government has taken due to economic crisis.

In 2008, Latvia received a 27 month, 7.5 billion euro loan package supported by the International Monetary Fund, the European Commission, Scandinavian and other European countries, the European Bank for Reconstruction and Development and the World Bank to help the national economy recover. After visiting Bulgaria and Moldova, the World Bank president arrived in Latvia to see for himself how the loan money is being spent in the country. The loan package was equal to almost 35 percent of Latvia’s GDP and the participation of the World Bank amounts to 400 million euros. This part of the loan is being spent in a social program, Latvia’s Emergency Social Safety Net Strategy.

During the visit in the Latvian city of Sigulda, where the unemployment rate is around 15 percent, Zoellick met with unemployed people participating in the so-called 100 lats (140 euros) program, formed by temporary employment provided by the Latvian government to its poorest citizens. “The government of Latvia has done a remarkable job in implementing tough but important reforms under difficult circumstances. It not only achieved its fiscal consolidation target, but it did so while protecting the most vulnerable groups through the Emergency Social Safety Net program,” said Zoellick. 

Under a scorching sun, the World Bank president listened with interest to workers who are trying to clear areas infected with giant hogweed, a toxic and invasive plant, and he felt a little embarrassed when he asked if this is a one-day salary, as the workers explained to him that 100 lats is a monthly fee for an eight-hour working day. Zoellick was interested in learning about the working conditions and how the program helps the Latvian people.

One worker, Janis Freibergs, who worked in the construction sector before the crisis, said that “one hundred lats is not enough to survive, but if there is nothing, then a hundred lats is money.” Unemployed Valdis Vanags said to Zoellick that he is happy with the work, because otherwise he would have no means of subsistence. He previously worked as a truck driver and lost that job less than a year ago. But now, he is worried about the future because his job will be over this winter. About the 100 lats program, the World Bank president noted: “Today, I saw firsthand how this program is helping Latvians who lost their jobs during the crisis to continue working so they can provide for their families.” Zoellick said that the World Bank would “talk to government officials about how to keep things like this going.”

Later, during a press conference in Sigulda’s New Castle with Dombrovskis and EU Development Commisioner Andris Piebalgs, the World Bank president declared that Latvia may apply long-term structural strategies to shore up the economy and to restore the Latvian labor market. The World Bank president noted: “Although Latvia graduated from World Bank lending in 2007, we are providing financial support, at the government’s request, on an exceptional basis to help the country weather the economic and financial storm.” Zoellick praised the efforts of the government to carry out important reforms “under difficult circumstances,” helping the country to recover its economic output. “The international economy still faces a significant period of uncertainty... I think we need to keep a fingertip feel on what’s happening,” Zoellick affirmed.

Latvia, which joined the World Bank in 1992, went through difficult moments in 2009 when the economy contracted by 18 percent and the unemployment in the country increased from 7 percent in 2008, to 17 percent in 2009. Dombrovskis said during the meeting in Sigulda that now macro-economic indicators have signaled that the economy had stabilized. The prime minister said that industrial production and exports are the main pillars of economic recovery momentum. During the second quarter of 2010, industrial production has increased by 12.1 percent and exports by 30.3 percent. This past July the consumer price index increased by 0.2 percent, data that reflects economic stabilization. The prime minister also talked about important government objectives, such as promoting small and medium businesses and combating the underground economy. A financial liability law is being drafted to formulate a strict and sound fiscal policy, Dombrovskis said.

During the press conference in Sigulda, World Bank President Zoellick didn’t forget Pakistan and said that the floods, which have devastated the country during the last weeks, have destroyed crops worth around 1 billion dollars. “All of us will have to pitch in to help,” said Zoellick.

The floods have killed more than 1,600 people, forced two million from their homes and more than 20 million disrupted throughout the country. More than one quarter of the Pakistan economy is based on agriculture and almost half of its workers are employed in the agricultural sector. “An early assessment is that the damages are more than in the earthquake in 2005,” he said. Zoellick added: “We hope that over the course of the next couple of months, by October, if flood conditions recede we will be able to help make an overall reconstruction assessment working with the Pakistani government.”

Finally, the World Bank president talked about the possible aid: “We’ve already started to think about reprogramming some of our funding, and based on the government request we are looking to see if we might reprogram about 900 million dollars.”