World Bank praises Latvia

Zoellick (right) and President Zatlers discuss Latvia's economy in Sigulda on Friday. Photo by the Office of the President of the Republic of Latvia.

RIGA — It appears Latvia’s international creditors are playing good cop, bad cop with the troubled Baltic state.

While the International Monetary Fund is unwavering in pressing Latvia for additional cuts, saying on Friday that current plans are not going far enough to consolidate the country’s finances, the World Bank praised the Baltic state for the painful austerity measures it has already undertaken.

“The government of Latvia has done a remarkable job in implementing tough but important reforms under difficult circumstances. It not only achieved its fiscal consolidation target, but it did so while protecting the most vulnerable groups through the Emergency Social Safety Net program,” said World Bank President Robert Zoellick.

Zoellick held talks with Latvia’s President Valdis Zatlers on the latest economic developments in the country in the resort town of Sigulda on Friday.

Latvia was forced to take a three-year €7.5 billion bailout from the IMF, World Bank and EU in 2008 after nationalizing the insolvent Parex Bank. Now the already stripped national budget faces a 400 million lats (€564 million) deficit reduction.

Latvia has pledged to cut its budget deficit from 8.5 percent of gross domestic product in 2010 to 6 percent in 2011 and 3 percent in 2012. As its economic recovery from one of deepest economic declines worldwide remains weak thus far, it’s unclear how much tax revenues will increase to bolster government coffers.

Despite optimistic talk from Prime Minister Valdis Dombrovskis about the recovery, the country economy is predicted to be the worst-performing in the world this year after Haiti according to IMF predictions earlier this year.

The IMF is asserting “that that considerable fiscal adjustment is still needed, especially on the expenditure side, to preserve debt sustainability.”