Latvia's IMF handout could total 2.5 billion dollars

Nov 24, 2008, 18:56 GMT

Riga - Latvia could be in line to get around 2.5 billion dollars from the coffers of the International Monetary Fund (IMF) and European Union (EU) according to an economic expert on the Baltic states.

Over the weekend, the IMF confirmed that the Latvian authorities had asked it to provide 'technical and financial support' and that it stood 'ready to rapidly assist their efforts in the context of a comprehensive economic program.'

Neil Shearing of London-based Capital Economics predicted Monday that Latvia's aid package would likely be 'much smaller' than the 25 billion-dollar package given to Hungary.

'While Latvia's external financing requirement as a share of GDP is the largest in the region, in absolute terms it's much smaller... As a result, the package of loans from the IMF and EU is unlikely to total much more than 2.5 billion dollars,' Shearing said.

He also suggested Latvia may be trying to agree a Precautionary Agreement with the IMF, which would provide access to finance on an ad-hoc basis.

The IMF's earlier agreements with Iceland, Hungary and Ukraine have all taken the form of Stand-By Arrangements, which provide funding according to a timetable subject to strict conditions.

The total tallies with an estimate given by Riga-based economist with SEB bank, Andris Vilks, who is also an adviser to Latvian prime minister Ivars Godmanis. Vilks said the figure could be around 2.1 billion dollars.

Latvia has been hit particularly hard by the global economic downturn, which has exacerbated problems in an already overheated economy.

After a decade of double-digit GDP growth, a booming real estate market and big wage increases, Latvia suddenly finds itself in what looks like being a prolonged recession.

On Monday Nordea bank economist Anssi Rantala predicted Latvian GDP would fall by more than 4 per cent in 2009 with few signs of recovery until well into 2010.

Prime Minister Godmanis is understood to have met with central bank governor Ilmars Rimsevics and Latvian president Valdis Zatlers at Riga castle Monday, though no official statement has been made about the topic of their conversation.

A Latvian finance ministry spokesperson told Deutsche Presse- Agentur