Latvian prime minister to call for return to growth and prosperity

Dec 22, 2008, 13:18 GMT

Riga - Latvian prime minister Ivars Godmanis in this year's Christmas address will urge citizens of the beleaguered Baltic nation to work together to bring about a return to 'growth and prosperity,' as the population continues to digest news about the country's economic straits.

The text of Godmanis' brief speech was released Monday, ahead of his televised broadcast on Wednesday.

'Life has not been easy for Latvia's residents, who have been burdened by hardship that we have started to solve successfully together,' the text of the address reads. 'The situation with the Latvian economy and financial system has prompted the government to take hard, but necessary decisions to stabilize and rehabilitate our economy.'

Last week the International Monetary Fund (IMF) confirmed it is organizing a multinational stabilization package for Latvia worth 7.5 billion euros (10.5 billion dollars). The size of the rescue package has taken economists by surprise and prompted them to revise their forecasts for 2009.

As part of the package, Godmanis' government, which marked its first year in office last weekend, is implementing a sweeping package of measures aimed at stabilizing the Latvian economy, which has gone into steep decline after more than a decade of strong growth.

London-based Capital Economics issued a briefing note Monday that said 10.5 billion dollars covers half of Latvia's external financing requirement and is equivalent to one-third of GDP. By contrast, the recent package for Hungary was equivalent to just over 15 per cent of GDP.

'Nobody in the market had expected Latvia to receive much more than seven billion dollars,' said Neil Shearing, an economist who focuses on emerging European markets for the Capital Economics.

'We had penciled in a fall in GDP of 5 per cent in 2009 and 1.5 per cent in 2010. But if past emerging market crises are anything to go by, GDP could easily contract by 10 per cent next year,' he added.

According to the government austerity measures, public sector pay will be slashed by 15 per cent in 2009 and a further 2 per cent in 2010. In addition, hundreds of workers in all sectors are losing their jobs. As a result, the mood in the Latvian capital, Riga, is a long way from the usual seasonal goodwill.

The feelings of Zane Luse, a linen weaver selling her handmade products from a stall at Riga's Christmas market are typical. 'This year, trade has been down on last year,' she said. 'But next year I fear will be really terrible.'