EU – Baltic States, Financial Services, Latvia

The interest on the loan has been set according to the IMF standard regulations. The maximum interest rate is 3.87%, depending on the proportion of Latvia's quota and the amount of the loan, writes LETA.

The interest on the first tranche of funds is also 3.87%.

The terms of repayment are stipulated in a special promissory note of the State of Latvia that was signed yesterday.

Latvia is to start repaying the loan in February 2012 – a year later than the IMF standard regulations would require. The repayment period may change, taking in consideration Latvia's balance of payments and currency reserves. Currently it is planned that the loan would be paid back in eight installments by end-2013.

The first part of the IMF loan will be used to secure liquidity of the State Treasury – ensuring implementation of the 2009 budget plan in the first quarter of the next year, because budget revenue at the beginning of the budget year is significantly smaller than the expenditures.

The loan is also planned to be used for refinancing short-term debt obligations. The nearest deadline for state debt refinancing is February 6, 2009, when a payment of LVL 194.92 million has to be made

In its December 23 decision, the IMF board resolved to grant Latvia EUR 1.68 billion (LVL 1.17 billion) financial support in form of a loan. The decision also specified the terms of the financial aid for Latvia over the course of the three next years, starting December 29 this year until February 15, 2011.

The IMF will issue funds to Latvia on a quarterly basis, with the bulk of the sum to be paid out in 2009. Altogether, Latvia will receive ten tranches.

As reported, the European Commission, the IMF, the World Bank and the European Bank for Reconstruction and Development, as well as several European countries, agreed to provide financial support for Latvia of EUR 7.5 billion (LVL 5.27 billion).