Riga - Latvia is set to experience the biggest economic
recession ever known, a leading economist predicted Wednesday.
'In two years Latvia has lost 25.5 per cent of GDP and the only
example worse than that is the Great Depression in the US,' said Mark
Weisbrot, co-director of the Washington-based Center for Economic and
Policy Research speaking at the University of Latvia.
But with the economy continuing to contract the total loss will
ultimately top 30 per cent and represent 'the worst two years in the
recorded history of the world in terms of output,' Weisbrot said.
The Baltic state is the recipient of a 7.5-billion-euro (11-
billion-dollar) loan package from the International Monetary Fund
(IMF), European Union and regional governments as it fights to
rebalance an economy that contracted by 18 per cent in 2009.
As part of the deal, the government of Prime Minister Valdis
Dombrovskis has introduced a range of swingeing spending cuts on
education, healthcare, social security and wages.
Pensions were also slashed but the measure was ruled as
unconstitutional in court and the money withheld from pensioners must
now be repaid.
Speaking to an audience including Dombrovskis, Weisbrot accused
the IMF of 'double standards' in the way it treated the countries of
Western and Eastern Europe.
'The IMF programme calls for a fiscal tightening for 2010 of 6.5
per cent of GDP ... This is not done in the US or Western Europe or
Japan and the IMF is not recommending these kinds of policies for any
of the rich countries,' Weisbrot said. The IMF's increased budget in
the wake of the global economic crisis was effectively being used to
shield western banks from potentially huge losses in Eastern Europe,
he added.
The economist also touched on the sensitive subject of devaluation
of the Latvian currency, the lat.
'Every year you have deflation you are increasing the debt burden
for the country. Devaluation would get rid of that problem,' Weisbrot
said.
'I think at this particular time devaluation will have less of a
negative impact than it would have had a year or two ago,' he added.
Earlier, Dombrovskis defended the IMF deal calling it a 'real
programme' that he believed would lead to Latvia joining the eurozone
on January 1, 2014.
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