Latvian parliament passes budget cuts demanded by IMF, EU

Apr 14, 2011, 14:27 GMT

Riga - The Latvian parliament, or Saeima, approved fresh budget cuts worth 50 million lats (100 million dollars) Thursday, while representatives of the International Monetary Fund (IMF) and European Commission concluded talks about the next round of cuts in 2012.

The budget amendments were approved by a vote of 54 votes to 37 and are in addition to 525-million-dollars' worth of savings in the 2011 budget approved in December 2010 after the IMF and EU said more belt-tightening was required.

Prime Minister Valdis Dombrovskis said that by cutting spending for 2011, the amount of fiscal consolidation needed in the 2012 budget would be 'reduced substantially' to a maximum of 180 million lats (366 million dollars).

The conclusion of the latest round of negotiations with the IMF and EU should open the door for Latvia to return to international financial markets for refinancing later this year.

European Union member Latvia called on help from the IMF and EU in 2007 for a 7.5-billion-euro (11-billion dollar) bailout loan after the collapse of one of its largest banks. The Latvian economy contracted by an incredible 18 per cent in 2009 but has slowly been recovering ever since.

Under the terms of the loan, strict limits on permitted budget deficits have to be observed and payments depend upon the state budget meeting IMF and EU approval.

Latvia hopes to get its budget deficit under the 3 per cent of GDP threshold demanded by the Maastricht criteria governing euro adoption by 2012, in order to join the eurozone in 2014.

Neighbouring Estonia became the first former Soviet republic to join the eurozone on January 1 this year.

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