Latvian bail-out deal still strong, says prime minister

Jan 6, 2010, 17:04 GMT

Riga - Latvian Prime Minister Valdis Dombrovskis said Wednesday he was sure his country's 7.5-billion-euro (11-billion- dollar) bail-out deal brokered by the International Monetary Fund was safe.

Additionally, he said, a preliminary agreement had been reached with lenders about changes made necessary by a court decision.

'The preliminary outcome of negotiations is positive. We are on course and we have been able to agree on the fact that (additional) costs can be made without reopening the budget, at the expense of the agreed budget deficit,' Dombrovskis said after a meeting with Latvian President Valdis Zatlers at Riga Castle.

The long-running saga of Latvia's international aid package, originally agreed upon in December 2008 and including contributions from the IMF, EU, World Bank and regional governments, including Sweden, was given a new twist in December when the Baltic country's Constitutional Court ruled that planned pension cuts that were part of the deal should not be allowed.

The decision cast doubt on whether Latvia could meet its financial obligations under the deal.

Finance Minister Einars Repse said Wednesday that around 80 million lats (164 million dollars) owed to pensioners so far would be reimbursed in February, even though the deadline for payments does not fall until July.

From March, it is planned that pensions will be paid at a higher rate, costing an additional 105 million lats.

'The Treasury has the necessary means, so I propose that the debt be paid to pensioners immediately. The Ministry of Finance will take all the necessary work to ensure that the debt is paid during the winter months, when people's heating costs are greater,' he said.

However, Latvia's deal with lenders still faces possible hitches. Tensions within Dombrovskis' coalition government are high and all five parties must sign up to the changes. The Justice Ministry must also decide whether the changes need to be approved by the Latvian Parliament, which could add another hiccup to the process.