IMF backs Latvian government on controversial budget-cutting vote

Nov 27, 2009, 10:26 GMT

   Riga - The International Monetary Fund's (IMF) top representative in Latvia said Friday that the Washington-based lender supported the Baltic state's efforts to pass a make-or-break austerity budget for 2010 next week.

David Moore, the IMF's resident representative in Latvia, said that the revised budget approved by the government would meet the commitments to cut spending by 500 million lats (1 billion dollars).

That sum is equivalent to about 4 per cent of Latvia's GDP, according to Moore.

   'We continue to support the authorities' extraordinary efforts to overcome the country's crisis,' Moore added.

   The budget is due for a decisive vote in the Latvian parliament on December 1.

   Unions and other civil groups are planning large-sale demonstrations on the same day to protest against big cuts to wages, jobs and public services and the introduction of new taxes as Latvia struggles to balance its books.

   On December 2, representatives of both the IMF and European Commission will arrive in Riga to review the government's final budget, Moore said.

   Latvia is the recipient of a 7.5-billion-euro (11-billion-dollar) bail-out package brokered by the IMF, which includes contributions from the European Union, the World Bank and regional governments.

   The money is paid in installments and is dependent on the introduction of sweeping structural and fiscal reforms.

   Failure to pass the budget at its second reading would have serious consequences, including the likely freezing of future loan payments and the collapse of an already fragile coalition government.

   After a lengthy boom fuelled by a property market bubble and cheap credit when Latvia joined the EU in 2004, the country has been severely affected by the global economic crisis of 2008.

   The Latvian government forecasts an 18-per-cent contraction in the economy for 2009.