Latvian prime minister says IMF deal proving "difficult"

Jul 15, 2009, 9:52 GMT

Riga - Latvian Prime Minister Valdis Dombrovskis said Wednesday negotiations with the International Monetary Fund (IMF) over a 200-million-euro (280-million-dollar) loan payment were proving 'difficult.'

Speaking on Latvian public radio, Dombrovskis struck a much more cautious note than he did on Monday, when he had said he was optimistic about receiving the cash.

'Discussions with the lenders are difficult and the conditions which the IMF proposes are also quite tough,' Dombrovskis said. He refused to reveal details, but said the IMF was making new demands.

Representatives of the European Commission and the IMF are in Latvia to assess wide-ranging fiscal and structural reforms introduced by his coalition government.

The European Commission has already promised a 1.2-billion-euro payment will be made by the end of July, but the IMF has yet to decide whether it will release a scheduled 200-million-euro payment.

A previous payment of the same amount was withheld after the IMF decided reforms were not happening fast enough.

Both payments form part of a 7.5-billion-euro (10-billion-dollar) aid package from international lenders agreed in late 2008.

However, Latvia's economic outlook has deteriorated significantly since the deal was signed by Dombrovskis' predecessor, Ivars Godmanis.

The economy is expected to contract by at least 18 per cent in 2009 and unemployment has risen to around 15 per cent.

In an effort to balance the books to satisfy lenders, Dombrovskis has introduced hard-hitting austerity measures, including tax hikes and big public sector wage and spending cuts.

On Monday the cabinet announced plans to sack around a third of staff working at government ministries.