IMF-Latvia ink budget deal

The Latvian government has accepted a new economic policy memorandum with the International Monetary Fund that pledges to cut its budget deficit this year by more than one quarter from planned levels, officials said on June 12.

In the memorandum, Latvia said it would trim the public sector deficit from the 130 million lats ($212 million) set in the current year's budget to 94 million lats, or from 2.45 percent to 1.77 percent of gross domestic product.

"This is no contradiction, as sometimes during implementation of the budget improvements can be achieved and this is now our goal," said finance ministry spokeswoman Baiba Melnace.

The IMF and Latvia have been arguing for nearly a year over the country's fiscal policy. The government, with an eye for costly preparations for EU and NATO membership, raised the budget deficit despite roaring economic growth of 7.6 percent last year.

After an IMF delegation visited Riga last month Finance Minister Gundars Berzins said Latvia would not seek a new stand-by loan of 46.2 million euros from the Fund when the current one expires this December, saying the restrictions hindered the country's economic growth.

The memorandum only covers 2002, for which 5 percent growth is forecast.

But the rapid growth and widening budget deficit have also led to a swelling of the current account deficit, which is forecast to remain at around 8.5 percent of GDP this year.