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Latvian authorities have made good progress in reducing instability in financial sector - IMF

By Editor. 28.07.2009

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 Latvian authorities have made good progress in reducing instability in the financial sector, as Anne-Marie Gulde, head of the International Monetary Fund mission to Latvia, states in a report informs LETA.

Gulde writes that the IMF mission has reached a staff-level agreement with the authorities of Latvia on a policy package that is intended to help Latvia overcome its difficult economic situation, while ensuring debt sustainability and protecting the most vulnerable groups in society, consistent with Latvia's strategy to adopt the euro at the earliest possible date.

The Letter of Intent that summarizes this agreement will be considered by the IMF Executive Board in the coming weeks. The completion of the first review by the Executive Board will enable Latvia to draw EUR 195 million under the arrangement.

The economic contraction has been much deeper than anticipated; domestic demand collapsed and the global economic environment has been much worse than expected at the time the program was initiated, states the report, adding that the Latvian authorities also made good progress in reducing instability in the financial sector.

But the economic downturn has revealed significant underlying weaknesses in government finances, causing the fiscal deficit to widen above initial targets. In response, the authorities have proposed a strengthened policy package intended to address the fiscal imbalance.

During the discussions, the mission underscored the importance of minimizing the social cost associated with the authorities' economic program by avoiding measures that disproportionately affect the most vulnerable in the society or unnecessarily impair the quality of public services that are offered to them. This, along with the weaker growth outlook, may require a somewhat higher fiscal spending in 2009 than envisaged in the supplementary budget, the report informs.

In view of unprecedented economic downturn, achieving the program goals requires very difficult decisions and trade-offs for the Latvian authorities. The IMF will continue to work intensely, and in close cooperation with the European Union, to assist the Latvian authorities in adapting to the challenges ahead.

As reported, the joint IMF and European Commission mission arrived in Latvia on July 13. The Commission's representatives left Latvia yesterday, whereas the IMF experts are still in Latvia to have several technical meetings, as the Finance Ministry informed LETA.

The Letter of Intent with the IMF was signed by all five ruling coalition parties yesterday and handed over to the IMF mission. Later the document will be delivered to the IMF offices in Washington where the IMF will consider further action.


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