RIGA - Environmental projects such as the recently announced $15 million waste management system planned for Liepaja will improve public health and create economic growth as a result, says the head of the World Bank's Latvia mission.
Extraction of gas given off by waste at Liepaja's landfill site will reduce pollution, said Ilze Donina, waste management officer at the Ministry of Environmental Protection and Regional Development.
"At least half of the gas is methane, one of the most potent contributors to global warming," Donina said.
The gas will probably be used for energy generation, she said, as is planned for the Getlini landfill site in Riga, where a similar World Bank funded project is already underway.
"It's a more expensive way of producing energy than normal, but pollution can be controlled in the burning process," said Donina.
The World Bank will directly contribute between $2.3 million and $4.9 million towards the cost of the Liepaja project. Among other sources of finance, $3 million will also come from the World Bank's Carbon Fund, the first time the fund has contributed to a project in Europe, said Toms Baumanis, external affairs officer at the bank's Latvia office.
Environmental projects are central to the World Bank's country assistance strategy, along with social projects and improvement in local government capacity, said Inguna Dobraja, head of the bank's mission to Latvia. Rural development in particular is crucial if the gap between the rich and poor is to be reduced, she said.
"Social assistance is often not targeted at the poorest people in this country," said Dobraja.
"We're thinking of lending money for housing improvements in the countryside, in addition to our help for small businesses there."
Dobraja rejected arguments by Juris Bojars, chairman of the Social Democratic Workers' Party, that too much money is being borrowed for "non-productive" sectors such as the environment, rather than industry and what Bojars calls "value-added production."
"Economic growth is directly linked to investments in health such as the waste management projects," said Dobraja.
"It is not simply about building roads and improving infrastructure."
Latvia lags behind in investment in human resources compared to its regional neighbors, Baumanis added.
Paying off World Bank investment loans, which now total $357 million, should present Latvia with few problems, says Roberts Zile, national aid coordinator at the Ministry for Cooperation with International Financial Agencies.
"Our debts to the World Bank amount to 16.2 percent of GDP," said Zile on his return from the World Bank and International Monetary Fund's annual meeting in Prague on Sept. 29. The meeting was cut short by protesters whose complaints included the debt repayment obligations of developing countries.
"This is not a serious foreign debt burden," said Zile.
"These projects benefit the whole of society."
While Latvia's large current account deficit is a serious problem, indebtedness to the World Bank is not storing up problems for the future, agrees Morten Hansen, visiting professor of economics at the University of Latvia.
Hansen, like Dobraja, points out that Latvia's accession to the European Union is dependent on major environmental expenditure.
"Assuming EU membership is going to produce growth, then the necessary environmental investment is economically sensible," he said.
The World Bank looks set to continue funding projects like that in Liepaja. But money for "structural adjustment" - paying off loans provided in the early 1990s by G24 nations on less favorable terms - may be a different matter, according to Basil Kavalsky, World Bank country director for Poland and the Baltic states. Without progress on privatization of large state industries such as power company Latvenergo, a second payout planned for next year would be "difficult," Kavalsky told the Wall Street Journal Europe in September.
"Privatization is an important part of the structural adjustment program," confirmed Dobraja. "Some things have been achieved, such as the involvement of investment banks to help the government get a better deal and to ensure transparency. But privatization has been slower than we thought."
Provision of structural adjustment loans will therefore be reviewed this month in consultation with the government, she said.
Meanwhile, the issue of transparency has again been highlighted following the dismissal for alleged corruption of two persons contracted by the state to manage education projects funded by the World Bank.
"We can't say our work with the government to combat corruption has been a tremendous success," said Dobraja.
"But we'll keep it on the agenda. One of our projects includes corruption prevention at the State Revenue Service, for example. Meanwhile we're reviewing all the documents in the educational procurement case."
The retraining provided by the World Bank as part of its loan packages is crucial to the country's development, says Guntars Krasts, chairman of Latvia's foreign affairs committee and Fatherland and Freedom Party MP.
"Now the World Bank are educating our people, which is the most valuable support we can get," said Krasts.
"After the disappearance of credits from the G24 nations due to corruption the World Bank refocused. Now they're flexible and accept our suggestions. Money is well-allocated and not wasted."
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