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MP nozīmīgākās intervijas ārvalstu presē 12.03. – 10.03.2011.

World News: Latvia to Seek to Renegotiate Financial Bailout


By Andrew Higgins
616 words
10 March 2009
The Wall Street Journal
A6
English
(Copyright (c) 2009, Dow Jones & Company, Inc.)

RIGA, Latvia -- Less than three months after securing a $10.5 billion emergency
lifeline, Latvia -- the weakest link in an increasingly frayed chain of East European
economies -- is backtracking on a deal that the International Monetary Fund hoped
would reduce the risk of a regional meltdown.

Speaking in an interview Monday in Latvia's capital, Valdis Dombrovskis, the Baltic


state's incoming prime minister, said he will seek a revision of major terms agreed
with the IMF, the European Union and other donors as soon as parliament confirms
his new government, likely Thursday.

"The country is on the verge of bankruptcy," said the prime minister designate, with
the nation hammered by its worst crisis since independence from the Soviet Union in
1991. "I have never found myself in such a bad situation," said the onetime finance
minister.

From 2000 until 2007, Latvia's economy grew 9% a year on average, the fastest rate
in Europe. A member of the EU since 2004, it is now the bloc's worst performer. Its
prospects have darkened considerably since the rescue package was agreed upon in
December, when Latvia's economy was expected to shrink by 5% this year. The
decline now is officially forecast to be around 12%.

"It is possible that the real recession will be worse," warned Mr. Dombrovskis.
Because of this, he said, Latvia will have a bigger budget deficit than an agreed level
of less than 5% of gross domestic product. The deficit, he said, likely will be at least
7%, despite sharp cuts in public-sector salaries and other austerity measures.

Asked about Latvia on Monday in Brussels, Joaquin Almunia, European


commissioner for economic and monetary affairs, said: "I hope all the engagements
and commitments discussed with Latvian authorities can be implemented." He said
any reopening of talks would involve "very difficult negotiations because the situation
is very difficult."

An IMF official said the fund "looks forward to continuing our discussions" once a
new Latvian government is confirmed but declined to comment further.

Emergency aid to Latvia includes $4.3 billion from the EU, $2.4 billion from the IMF,
and $2.5 billion from Sweden and other Nordic countries, whose banks are heavily
exposed in the Baltics. Only a small portion of this has yet been disbursed.

Though tiny, with only 2.3 million people, Latvia has stirred deep concern beyond its
borders because of fears that its woes could infect others. A December report by the
MP nozīmīgākās intervijas ārvalstu presē 12.03. – 10.03.2011.

IMF outlining the rescue package warned that "left unaddressed" Latvia's troubles
"could spill over into other emerging European economies with similar
vulnerabilities, as well as to West European countries whose banks are exposed to the
region."

Economists, however, disagree on the risks of "contagion" from Latvia, with some
arguing that -- along with Lithuania, Estonia and Bulgaria -- it belongs to a special
class of European countries that don't let their currencies float. Latvia's currency, the
lat, is pegged to the euro, and most loans are denominated in euros.

Reopening talks with international donors could win Latvia a bit more room to
maneuver, but it is also fraught with risk as it would likely open discussion of the
wisdom of the currency peg, which Latvia's central bank and politicians have tried to
avoid.

The IMF, Mr. Dombrovskis said, was "initially in favor of devaluation" but backed
down, in part because of opposition from the EU, which worries Latvia might be
tempted to unilaterally adopt the euro. "We don't consider devaluation an option," he
said.