Government gets out of the lending business

The Latvian government will no longer underwrite bank loans to private companies, according to amendments to the Law on Budget and Financial Management that came into force at the end of April, reports Nozare.lv.

The parliament endorsed the amendments on April 4 in order to limit the number of companies that may apply for state guarantees, and bank loans to private companies will no longer be underwritten by the government. This does not concern state companies, said the Finance Ministry’s Communications Department head Aleksis Jarockis.
The amendments came into force on April 26.

Finance Minister Andris Vilks previously said that the practice of underwriting bank loans to private companies by the state had to be terminated. But that doesn’t mean it is out of a mess with some of its current guarantees to Latvian companies.

At the moment, the government is trying to find a way around a loan taken out by Liepajas metalurgs that was underwritten by the state in 2009. The state has already paid part of the state-underwritten loan for the company at the end of April, when the State Treasury transferred the principal amount of loan payment, 6,128,456 euros, to the Italian back UniCredit S.p.A.

The loan, 85.6 million euros in total, which Liepajas metalurgs took out for production modernization, was underwritten by then Finance Minister Einars Repse in December 2009. Liepajas metalurgs must still repay 67,465,055.88 euros to the Italian bank, reported the State Treasury’s press secretary Ieva Dzelme on May 14.

The next loan payment must be made on Oct. 30. The company must cover the basic amount of the bank’s loan - 6,128,456.37 euros - and its interest due - 1,684,528.69 euros.