Latvia shuns IMF credit

Latvia no longer needs stand-by loans from the International Monetary Fund, and their tough conditions may even restrain the country's quick economic growth, the country's finance minister said last week.

"We don't need IMF memorandums. Actually they could hinder our economic development," Gundars Berzins was quoted as saying by the Baltic News Service after the conclusion of a visit by an IMF delegation May 8.

The IMF and Latvia had a run- in last year last over the government's raising the projected budget deficit to 2.46 percent of gross domestic product despite economic growth of 7.6 percent last year and expectations for growth at nearly 5 percent this year.

Latvian officials have argued they need to run the higher deficit to finance reforms needed to prepare the country to join the European Union and NATO.

Latvia's current stand-by loan of 46.2 million euros ($42 million) with the IMF expires this December.

Developing countries often negotiate IMF stand-by arrangements to reassure investors, even if they do not intend to draw on the credit.

Despite the statements by the minister, the IMF team said in a statement it was "impressed by Latvia's strong economic and fiscal performance in 2001 and so far in 2002."

A more modest budget deficit of 1.8 percent of GDP now "appears possible," the statement read.

The mission also raised its GDP growth projection for this year from 4.5 percent to 5 percent, while inflation should remain at around 3 percent.

Sluggish external demand means the current account deficit could reach 8.5 percent, however, the team predicted.