Borg beats bailout drum following belt tightening in Riga
AFP/The Local · 9 Jun 2009, 15:32
Published: 09 Jun 2009 15:32 GMT+02:00
Latvia vowed on Monday to cut its budget by 10 percent in a drive to meet the terms of an international bailout which the recession-hit Baltic state needs to avert an economic meltdown.
"We've seen responsible movement now in terms of commitment from Riga," Borg told several journalists on the sidelines on an EU finance ministers' meeting in Luxembourg.
"We also need to see other people strengthening their commitment to solve the situation, in particular IMF and the international community."
Sweden in particular has been following developments in struggling Latvia because Swedish banks are heavily exposed to the country through loans they made before its boom turned to bust.
In December, Latvia won a €7.5 billion ($10.5 billion) bailout from lenders including the International Monetary Fund (IMF) and the European Union, with its economy expected to contract a huge 18 percent this year.
Under the terms of the rescue package Latvia has to do all it can to rein in its deficit -- the shortfall between state revenue and spending -- and has been paring public services and wages to the bone.
Last week, parliament approved a deficit equivalent to 9.2 percent of Latvia's gross domestic product, nearly double the 5.0 percent originally agreed with lenders.
Lawmakers are expected to pass the revised budget on June 17.
If Latvia fails to make the promised cuts, it could be forced to do without a tranche of more than €2.0 billion from the international loan package, raising the spectre of debt default and economic meltdown.
Riga has been battling mounting speculation that the crisis could force it to devalue its currency, the lat, which is pegged to the euro.