IMF, lenders give Latvia $10.5bn loan

[Naveed Yaseen]

RIGA, Latvia: A group of international lenders on Friday pledged $10.5 billion (euro7.5 billion) to the Baltic state of Latvia, the latest country to receive financial aid since the start of the global economic downturn.

The International Monetary Fund (IMF), which led the group, announced it would provide a $2.4 billion (euro1.7 billion) standby loan, while the European Union pledged a loan of $4.3 billion (euro 3.1 billion) to Latvia, whose economy has been hard-hit by the global recession and years of excessively high growth. The total loan for Latvia, which has a population of 2.3 million, far exceeds similar bailout packages to other countries on a per capita basis.

Other lenders include the World Bank, Nordic states, Czech Republic, Poland and neighbouring Estonia, the IMF said. Dominique Strauss-Kahn, the IMF’s Managing Director, said the package would help boost liquidity in Latvia’s financial sector, restore economic stability and strengthen competitiveness.

In order to qualify for the funds, Latvia’s centre-right government had to overhaul next year’s budget, particularly by slashing expenditures. However, Latvia was allowed to maintain a large budget deficit, 4.9 per cent of GDP, while it struggles to get its economy running again.

The Finance Ministry of France, which currently heads the rotating EU presidency, said the funds would help Latvia meet conditions for adopting the euro. The ministry said EU’s part of the loan must approved by European Commission in January, and then by finance ministers of the 27-member bloc.

The IMF also said that its management and executive board would have to approve its facility. Latvia is the second EU member state, after Hungary, to receive financial aid since the start of the global financial crisis. The IMF has granted crisis lending to Hungary, Iceland, Pakistan and Ukraine.

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