Latvia debates crucial "crisis budget"

Riga - Parliamentarians in Latvia on Thursday debated Prime Minister Valdis Dombrovskis' call to approve a 'crisis budget' for 2010, which would move the recession-hit Baltic state one step closer to its next bail-out payment from international lenders. Addressing the Latvian parliament, or Saeima, at the beginning of the debate, Dombrovskis said the budget had been drafted 'at a time when our country has only just moved from the edge of insolvency, when we still live in a haven created by our international loan, earning less than we spend.' He also warned advocates of devaluation of the national currency, the lat, that such a move would do more harm than good. 'By devaluing, we would lose the light at end of the tunnel. We would not be able to implement our exit strategy to join the eurozone in 2014,' Dombrovskis said. Latvia is the recipient of a 7.5-billion-euro (11 billion dollar) bail-out package brokered by the International Monetary Fund (IMF) and including contributions from the European Union, World Bank and regional governments, including Sweden. The money is paid in installments and is dependent upon introduction by Latvia of sweeping social and fiscal reforms. Failure to approve the budget would have serious consequences, including the likely freezing of future loan payments. Rejection could also signal the end of the already fragile five-party coalition government. The budget includes plans to save 500 million lats (1 billion dollars) by reducing spending and boosting revenues even while Latvia wrestles with the EU's deepest recession. After a lengthy boom fuelled by a property market bubble and the cheap credit when Latvia joined the EU in 2004, the country was severely affected by the global economic crisis of 2008. There was some good news for the government later Thursday, when central bank governor Ilmars Rimsevics said the recession may not be as deep as previously forecast. He expected a fall in gross domestic product of between 17 and 17.5 per cent, better than the government's own forecast of an 18-per-cent contraction. Rimsevics urged MPs to back the budget. 'Latvia has no other way,' he told journalists at a news conference in Riga.