Second leg of recession forecast

  • 2011-10-20
  • From wire reports

RIGA - Latvia, which had a budget deficit of almost 10 percent of gross domestic product in 2009, should plan to cut its deficit more than planned this year and balance it in 2013, central bank Governor Ilmars Rimsevics said, reports Bloomberg. The country is planning a deficit of 2.5 percent of GDP next year, but “an optimal one would be 2 percent, and in 2013 it would be good if the budget was balanced,” Rimsevics said on the Latvian Television program “900 Seconds” on Oct. 17.
 “Latvia has to be ready for a second wave of the crisis,” he said on television. “For Latvia to be ready, we would need a balanced budget, or a budget with a surplus” in 2013.

Latvia’s 2011 budget deficit will be below the goal of 4.5 percent of gross domestic product, said Mark Griffiths, the International Monetary Fund’s mission chief for the Baltic country. “The good news is both sides expect the number to be below the program target for this year,” Griffiths said in Riga.
Latvia’s economy grew 5.6 percent in the second quarter, the most in 3-1/2 years, after contracting by almost a quarter since 2008 following the end of a credit-fueled real-estate bubble. The government was forced to turn to a group led by the European Union and the IMF for a 7.5 billion euro loan package in 2008 after the second-biggest Latvian bank, Parex, needed a state rescue.

“We do think it’s very important for the government to aim at a deficit of 2.5 percent of GDP next year and to meet the Maastricht criteria,” Griffiths said, referring to rules that determine whether a country is able to adopt the euro. “We need to meet this in a strong and sustainable way, not through odd measures, but through genuine, lasting measures.”
Prime Minister Valdis Dombrovskis’ Unity Party, the Zatlers Reform Party and the National Alliance have agreed to form a three-party government, though with some defections from Zatlers’ party, it currently has 50 seats in the 100-member parliament that favors further austerity and adoption of the euro in 2014. Latvia plans to complete its lending program this year, and the final review mission will take place at the end of this month, according to the Finance Ministry.

The IMF has a “number of serious concerns” about the government’s decision to invest 57.6 million lats (82.2 million euros) in airBaltic, Griffiths said. The state owns 52.6 percent of the unprofitable airline while Baltic Aviation Systems has 47.2 percent.
“We need to make sure that public money is not wasted,” he said.