RIGA — After months of haggling between parties over cuts and economic policy, the International Monetary Fund agreed late yesterday to disperse an additional €195.2 million loan to Latvia.
The loan tranche is part of a €7.5 billion package agreed last year between the IMF, EU, Latvia and other lenders to give the country’s cash-strapped government much-needed funds during a double-digit recession and avoid devaluation of Latvia’s currency, the lats.
Dominique Strauss-Kahn, IMF managing director, complimented the Latvian authorities' willingness to take whatever steps necessary to stabilize their finances. Photo by Guillaume Paumier.
“The authorities have made good progress in stabilizing the financial sector,” Dominique Strauss-Kahn, IMF managing director, said in a press release. “The Latvian authorities are committed to putting their economy back onto a sustainable path, through substantial corrective measures, including additional fiscal consolidation.”
Need help securing your finances? Latvia won a considerable increase in its budget deficit cap stipulated as a condition of the IMF loan. Originally the limit was five percent of gross domestic product — but after negotiations over the last months between the government and the IMF, a new 13 percent of GDP limit was approved. The IMF will now allow Latvia to spend up to one percent GDP in additional resources on social welfare programs.
“The positive decision of the IMF board signals a level of trust given to the current government of Latvia,” Latvian finance minister Einars Repše said. “This decision approves the actions that the government has taken so far – amendments to the state budget of 2009, elimination of inexpedient spending, reforms in the public sector.”
To avoid an unmanageable budget deficit the Latvian government has been forced to make a wide range of emergency cuts, particularly in its pension system and public education.
Yesterday’s disbursement and the increased budget deficit cap will ease the barrage of painful austerity measures and tax hikes and help ensure the stability of the lats.
