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Black hole drains Latvia’s coffers

  • 2013-07-31
  • From wire reports

RIGA - Latvian MP Andrejs Elksnins (Harmony Center) has sent a letter to Prime Minister Valdis Dombrovskis (Unity), requesting an explanation regarding the State Treasury decision to repay the principal amount of the loan owed to the Italian bank UniCredit by the financially-troubled metallurgical company Liepajas metalurgs, reports LETA.

Dombrovskis and Finance Minister Andris Vilks (Unity) are not commenting as to why the decision was made before the company’s legal protection plan was approved, says Elksnins. According to Elksnins, Dombrovskis and Vilks have not explained why this decision was deemed more rational than repaying Liepajas metalurgs debt after the approval of the company’s legal protection plan, when the state would have a clear notion of Liepajas metalurgs development, operational strategy and solutions.

The State Treasury has repaid from the state budget the principal amount of the loan owed to UniCredit by debtor Liepajas metalurgs, in the amount of 67,465,056 euros, an amount that Latvia can hardly afford at this time.
The repayment of the principal amount of the loan will increase the general government budget deficit by 51.7 million lats or 0.3 percent of the predicted gross domestic product in 2013.

Following the repayment of the principal to Unicredit, a more thorough assessment of state guarantees to companies is required in the future, Finance Ministry State Secretary Sanita Bajare said in an interview on Latvian Radio on July 26.
According to Bajare, it is necessary to ensure that the government and Saeima receive full information about borrowers. A pertinent question may be: Why didn’t the government think about doing this before providing guarantees to these companies? After all, the Liepajas metalurgs debacle appears to be another Ponzi scheme, with the owners having sucked the profits out of the company into their private holdings, expecting the state to come in and bail out the company, according to some reports.

In 2009, when the state and Saeima supported backing Liepajas metalurgs’ loan, the decision was made after assessing the company’s results and business plan, taking into account the crisis-hit metallurgical industry. Due to the passive and poor actions of Liepajas metalurgs management, the company did not fulfill its business plan, pointed out Bajare.

If Liepajas metalurgs draws up a quality legal protection plan and the court approves it, the company will be able to resume operations and there will be a chance to agree on the repayment of the guaranteed amount and harmonize the repayment schedule. However, if the court does not approve the company’s legal protection plan, Liepajas metalurgs will face insolvency, explained Bajare, commenting on potential future scenarios.

In both cases, the state will have a chance of recovering the underwritten amount, said Bajare. At the moment, it is of utmost importance to draft and submit a quality legal protection plan, she emphasized.

The state has once again wasted taxpayers’ millions, Latvian Chamber of Commerce and Industry President Gundars Strautmanis points out in an interview with Nozare.lv. It is clear that when the state underwrote the Liepajas metalurgs loan, it did not properly and responsibly follow the developments in the company. Therefore it has once again wasted taxpayer money, explained Strautmanis.

Moreover, the conflict of interest in the actions of Liepajas metalurgs officials has not been prevented, adds Strautmanis.
The decision to repay the debt is logical, given that the loan was underwritten by the state and that halting Liepajas metalurgs operations would cost the state even more, Liepaja Mayor Uldis Sesks said.

Liepajas metalurgs is currently not only the largest employer in Liepaja, but also one of the largest manufacturers in Latvia, therefore it is very important that all the sides involved in the matter take constructive decisions, said Sesks.