Budget, EU – Baltic States, Financial Services, Latvia, Legislation, Loan

Today, European Commissioner for Economic and Monetary Affairs Joaquin Almunia signed the decision that sets in motion the preparation of the second installment of the EUR 3.1 billion loan by the European Community agreed by the EU Council in January. The disbursement will be made in the second half of July after the signature, by the Latvian authorities and the Commission, of the Supplemental Memorandum of Understanding adopted today, and after completion of the borrowing operations in the international financial markets by the Commission to finance the installment, reports LETA.

The year 2012 deadline is consistent with Latvia's ongoing process of economic and budgetary adjustment and the medium-term euro adoption aim, which is the anchor of its strategy, the Commission said in a statement.

In a press release, Almunia underlines that the EU is providing significant aid to Latvia.

"Latvia is going through a very painful adjustment, but the EU is providing considerable support with a balance of payments loan that is the biggest part of the international financial assistance, and the second installment of which will be disbursed in the coming weeks. EU support is also coming from extra advances from the EU funds and the increased operations of the European financial institutions. The correction of the large budgetary and macro-economic imbalances will put the country on the road to the euro and to sustainable growth conducive to employment creation," said Almunia, urging: "attention should be paid to mitigate the negative impact of the adjustment on the poor".

Today's recommendations call for the Latvian authorities to implement fully the 2009 supplementary budget adopted by the Parliament on 16 June in order to reach a general government deficit this year of below 10% of GDP. .The authorities are also invited to adopt, and rigorously implement, a budget for 2010 that will reduce the deficit further and to ultimately bring the deficit to below 3% by 2012.

"The budgetary consolidation measures should secure a lasting improvement in the general government balance while being geared towards enhancing the quality of the public finances and promoting structural reforms notably as regards education and healthcare, so as to reinforce the growth potential of the economy. Attention should also be paid to the distributional consequences of the adjustment and to mitigate the negative impact on the poorer sectors of the population," reads the EC statement.

Latvia is the ninth EU country for which the EC makes budgetary correction recommendations this year. Alongside Latvia, recommendations on another four – Malta, Lithuania, Poland and Romania, will be considered by the EU finance ministers on 7 July, together with new recommendations addressed to Hungary.

In a National Trilateral Cooperation Council meeting yesterday, Finance Minister Einars Repse (New Era) underlined that, when passing budgetary amendments, Latvia has not set a budget deficit limit, as it is hard to be prognosticated in the current situation.

Latvia agreed with the international lenders on reducing the budget deficit by LVL 500 million and will achieve it, Repse said.

As the minister pointed out, Latvia should conclude this year with a budget deficit equal to approximately 10% of the GDP. It is planned to limit the budget deficit to approximately six% next year and to around two% of the GDP in two year's time, so that Latvia could meet the Maastricht criteria.