Today's €200 million for Latvia's financial sector is the first of two loans the World Bank is giving Latvia to assist with the consequences of the economic crisis.
RIGA — The World Bank approved a €200 million loan to the Latvian government today to strengthen and reform the country’s hard-hit financial sector, which has lost hundreds of millions of lats since the crisis began.
Latvian banks lost 400 million lats (€566 million) to unpaid loans in the first seven months of 2009, according to the Latvian Financial and Capital Market Commission. Meanwhile the domestically-owned Parex Bank, the country’s second-largest by assets, was nationalized in November 2008 to remain solvent. The country’s 25 banks, the largest of which hail from Scandinavia, have tightened credit in response to mounting losses, causing the economy to suffer.
“Strengthening the Latvian banking sector will encourage resumption in lending to Latvia’s creative entrepreneurs, small business owners and other businesses. It will also mean that depositors’ savings are protected,” Sophie Sirtaine, a World Bank Europe and Central Asia Region market analyst, said in a press release.
Money from the loan will be used to strengthen the banking system’s solvency and liquidity, facilitate the renegotiation of corporate and mortgage debts to avoid foreclosures and insolvencies. Meanwhile under the loan terms the Latvian government will strengthen banking sector regulations and improve consumer protection laws in the financial sector.
“Our goal is a stable and balanced national economy based on healthy competitiveness,” Latvian finance minister Einars Repše said in a press release. “The most important task for the government is to approve the national budget for the coming year. In achieving that we would assure the Latvian public and foreign investors of the stabilization of the economic conditions in this country.”
Another loan coming in 2010
Latvian social welfare programs have been strained by budget cuts as the government has struggled to avoid a budget deficit above the stipulations of its loan deal with the International Monetary Fund and EU. Pensions, health care services and education budgets have been cut.
Today the World Bank also announced that its preparing a separate loan for the Latvian government, to be approved in early 2010, to provide funds to cushion the social impact of the crisis for people directly feeling the impact of those budget cuts. Meanwhile another lender to Latvia, the IMF, recently announced that it would not press for lower deficit limits in debtor states until the world economy recovered further.
