Latvia meets lenders’ demands

  • 2011-04-21
  • From wire reports

RIGA - Latvia has completed talks with the International Monetary Fund and the European Commission to free up about 300 million euros in funds from its bailout loan, reports Bloomberg. “We have agreement on all the main issues,” the IMF’s Latvian mission chief, Mark Griffiths, said on April 14 at a news conference with Prime Minister Valdis Dombrovskis (Unity). The lenders and government agreed to a budget-deficit target of 2.5 percent of gross domestic product for next year, Griffiths said.

To reach the target, Latvia needs to find savings and raise revenue equal to 1 percent of GDP, Griffiths said. Gabriele Giudice, the EC’s mission chief to Latvia, said at the same news conference that a decision may be made in June on freeing up the funds, which will come from about 600 million euros that was set aside for bank restructuring costs.
The Baltic country’s parliament passed on April 14 another round of spending cuts and tax increases to lower the deficit this year and meet demands from the lenders. Latvia turned to a group led by the EC and the IMF for a 7.5 billion euro bail-out loan package after its second-biggest bank, Parex, collapsed, requiring a state rescue in 2008.

The deficit will be about 4.5 percent of GDP this year and 2.5 percent next year, so that it can be below the 3 percent limit needed to qualify for adoption of the euro, which the country plans to introduce in 2014, Griffiths said. “The authorities want to take no chances in meeting it and they want to meet it in a cast-iron way,” he said. Euro adoption is “a major thing that Latvia needs to achieve,” Griffiths said, and will mean lower interest rates and no exchange-rate risk. Latvia plans to return to the capital markets with its first international bond sale since 2008 in the coming months. The country may sell as much as 1.5 billion euros in bonds this year to finance the budget, Finance Minister Andris Vilks said in January.