Riga - The International Monetary Fund (IMF) hinted on
Thursday that it may allow revised terms on a multi-billion euro aid
package for Latvia - currently suffering the European Union's deepest
recession - in order to alleviate potential social unrest.
The IMF has pledged a 7.5-billion euro (10 billion dollar)
economic assistance package to Latvia, as the country's prime
minister has repeatedly warned of a potential national bankruptcy,
despite planned spending cuts of around 40 per cent.
Speaking in Washington in response to a question from the German
Press Agency dpa, IMF spokesman David Hawley confirmed that the
organization will send a review mission to the troubled
Baltic state soon in order to discuss a revised budget 'and many
other issues.'
'It's important to consider the social dimensions. The Fund
supports the authorities but of course is concerned about social
costs and will do whatever it can within the framework of the
programme to protect the vulnerable,' Hawley said.
Budget proposals drawn up by the government of Latvian Prime
Minister Valdis Dombrovskis allow for a 7 per cent deficit for
2009, despite the fact that the terms of the economic assistance
package brokered by the IMF in late 2008 require Latvia to limit its
deficit to a maximum 5 per cent of GDP.
Failure to stick to the agreed limit would make Latvia ineligible
for future tranches of the loan. One payment has already been missed
because of slow progress in implementing reforms.
But the 2 per cent discrepancy between the agreed limit and the
planned budget seems to point towards Latvia winning some extra
leeway from a group of lenders that includes the IMF, World Bank and
European Commission.
Prime Minister Dombrovskis has repeatedly stated that failure to
receive the bail-out money would send the Baltic state into a state
of effective bankruptcy.
Even planned cuts of 40 per cent to government spending would not
bring Latvia close to the 5 per cent threshold, according to Finance
Minister Einars Repse, who travelled to the IMF in Washington in
April as part of his effort to win revised terms.
The scale of cutbacks in areas such as education, healthcare and
business support is causing growing anger in Latvia.
Just two years ago, Latvia boasted the best growth figures in the
EU, but on May 4 the European Commission predicted the Latvian
economy would shrink by more than 13 per cent in 2009, worse even
than neighbouring Lithuania and Estonia.
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