“The fiscal restructuring programme is … one of the most credible restructuring programmes we’ve seen. It’s very ambitious,” Swedish Finance Minister Anders Borg told reporters in Stockholm, speaking for the eight-nation constituency.
Latvia, which is in the grip of the sharpest recession in the 27-nation European Union, has said its priority is to cut state spending to try to fend off the worst and is slated to introduce economic adjustment measures aimed at cutting budgetary outlays, including salaries.
“We strongly support the implementation of the restructuring programme,” Borg said, pointing out that the plan, which is set to go to the Latvian parliament in coming days, would also help reduce “the cost level of the economy and at the same time increase their competitiveness.”
Latvia launched talks last month with the International Monetary Fund, the European Union, the European Bank for Reconstruction and Development, and countries including Sweden, a leading investor in the Baltic state, in search of help to shore up its ailing economy.
Borg said there would be contributions from the IMF, the World Bank and all the Nordic countries and a deal would be done by Christmas.
Last week, Latvian Finance Minister Atis Slakteris said that the IMF had suggested that Riga drop the peg linking its national currency, the lat, with the euro to help ease the country’s economic strains, but that the government did not want to go down that track.
Borg said Wednesday he supported that decision.
“We also strongly support the Latvian government’s ambition to stick to the currency peg and we believe that on the back of this very credible fiscal restructuring programme that the peg is highly credible,” he said.
Swedish banks, which dominate the Lativan market, could face big losses if the lat were devalued, because most customers have taken out loans in euros but are paid in lats and would therefore have trouble meeting their obligations to lenders.
Borg also called on the international community to help Latvia achieve its aim of entering the eurozone by 2012.
Riga had originally aimed to switch from its currency, the lat, at the beginning of this year but had to put the plan on ice because of its rocketing inflation, which must also be brought to heel by would-be eurozone members.