Riga - Latvia, which is currently experiencing the European
Union's harshest economic recession, faces an 'incredibly tough'
2009, representatives of the International Monetary Fund (IMF) said
Thursday.
On the same day that an IMF mission held talks with Latvian Prime
Minister Valdis Dombrovskis in Riga as it begins to assess progress
introducing hard-hitting reforms and budget cuts, the organization
published an interview in its 'IMF Survey' with mission chief Mark
Griffith and regional director Christoph Rosenberg in which they
warned that even tougher times were ahead for the embattled Baltic
state.
'2009 will be an incredibly tough year. Latvia will need
substantial assistance from the international community to ease the
social costs of the crisis,' Griffith said.
Rosenberg said Latvia had been 'on the IMF's radar screen' for a
long time and that as far back as 2005, the IMF had warned publicly
that the economy was in danger of overheating.
Those warnings went largely unheeded as Latvia rode a wave of easy
credit, rapidly rising wages and huge gains in real estate prices.
But last year the property bubble burst, credit dried up and the
government was forced to bailout local bank Parex, sending Latvia to
the edge of bankruptcy.
'Output fell by an estimated 18 percent year on year in the first
quarter of 2009, and could fall by a similar amount for the year as a
whole,' said Rosenberg, who denied the IMF was to blame for the
widespread lay-offs, wage cuts and closures that are affecting
thousands of ordinary people.
'The budget choices facing Latvia today are extremely difficult.
But it's also important to remember that without assistance from the
EU, the IMF, and other partners, Latvia wouldn't have been able to
run a budget deficit at all. It might even have had to run a surplus,
in which case the adjustment would have been much, much harsher than
it already is,' Rosenberg said.
In December 2008 the IMF brokered a 7.5-billion euro (10 billion
dollar) economic assistance package to Latvia with money also coming
from the EU, World Bank and countries such as Sweden which have big
stakes in the Latvian banking sector.
However, Latvia has already missed out on one payment of 200
million euros after reforms were deemed to be moving too slowly.
The latest IMF mission will recommend whether or not Latvia
receives the next 200 million euro tranche.
Budget proposals drawn up by the government allow for a deficit of
up to 7 per cent of GDP, despite the fact that the terms of the
economic assistance package require Latvia to limit its deficit to a
maximum 5 per cent of GDP.
Prime Minister Dombrovskis is hopeful that lenders will loosen the
requirement in the wake of worsening economic data.
The IMF mission will conclude its visit to Latvia on June 5.
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