World Bank helps rural Latvia

RIGA - With the help of the World Bank, people living in the Latvian countryside should be able to start looking for sources of income other than farming.

Latvian Finance Minister Roberts Zile and Basil G. Kavalsky, the World Bank's country director for Poland and the Baltics, signed an agreement for a $25 million World Bank loan for the Latvian countryside development project Sept. 9. The agreement is aimed at providing more money so locals can start their own small- and medium-sized ventures: bakeries, grocery shops and other businesses.

Before inking the agreement, Zile said, "It's important the loan is granted now, when the times are quite hard for those in the country because income from farming is comparatively low and people have to look for other sources of income."

The World Bank loan will be used to promote private sector development, strengthen the legal base for land reform, decrease poverty and develop the financial system in the countryside.

This is already the second project on rural development financed by the World Bank, Zile said. The first loan, which Kavalsky called "an extremely successful operation," was granted in 1994.

"This loan is a natural next step that tries to reach a larger group in this area. We are very confident it will have the same success as the previous loan," Kavalsky said.

According to project head Aigars Stokenbergs, four Latvian banks will grant loans for the countryside development - Latvijas Hipoteku Banka, Unibanka, Parex Banka and Latvijas Krajbanka.

In the framework of the previous project, only one Latvian bank was issuing World Bank loans at an interest rate of 15 percent per year. Stokenbergs said this time the interest rate may be 2 to 3 percent lower because of the cheaper loan and competition among the four banks.

Kavalsky said the repayment rate of the previous loan has been very high because the loans are carefully evaluated.

"There is always a risk when you lend, but these are risks that are worth taking," he said.

The World Bank loaned $25 million on the condition that loans for individual enterprises in the Latvian countryside won't exceed 20,000 lats ($34,480) in three years.

Latvia has to repay the loan in 17 years, but does not have to return a cent in the first five years. Kavalsky said the loan has a revolving character because as soon as loans are repaid, the government can loan again and generate more loans.

Since 1992, the World Bank has financed 11 Latvian projects lending in total $263.7 million.