Disgruntled IMF to resume discussions

RIGA - Visiting officials from the International Monetary Fund left Latvia this week without completing a review of the country's standby loan agreement, citing the size of next year's expected budget deficit. Discussions will resume next April on the future of the agreement which allows Latvia access to credit and represents de facto approval of a country's fiscal policy. It expires next autumn.

By April it should be evident whether the government is sticking to an unofficial promise to avoid a deficit of 140.4 million lats ($226.45 million), or 2.46 percent of gross domestic product which is projected in the draft budget submitted to Parliament Oct. 19.

"We've decided to give the government more time," said Johannes Mueller, chief of the IMF mission evaluating the country's economic condition.

"Since the government did such a good job in 2001 we should give them a chance to keep the program alive."

Citing a worldwide economic slowdown and financial instability caused by the Sept. 11 terrorist attacks in the U.S.A., the IMF is pushing for a budget deficit around 1.5 percent of the nation's GDP.

Mueller said the government had sent him an informal letter agreeing to deficit targets of 1.5 percent of GDP for the first two quarters of 2002.

"They have to continue good fiscal performance. They must meet the December requirement and the end of March target," Mueller said. "We'll definitely be back in April, and if we decided permanently we don't want to complete the review, the precautionary standby agreement would just expire."

By April, he added, the IMF should be able to see if Latvia can meet its budget deficit recommendations for the rest of 2002.

The government hopes to meet these requirements both by improving tax collection to offset a reduction in corporate tax and through careful budget implementation.

"The budget proposal has been drafted in a cautious way," Finance Minister Gundars Berzins. "We see many options to move toward a lower deficit level of between 1.7 percent and 1.9 percent of GDP."

He said the 2.46 percent projected deficit was just a "baseline" projection. The best-case scenario is a deficit of just 1.4 percent of GDP.

What the government is not willing to change to lower the deficit is its proposed cut in corporate tax or spending on preparations for European Union and NATO membership.

"We have certain commitments, and it is not possible to reduce spending," Berzins said.