IMF Completes Third Review under Stand-By Arrangement with Latvia
OREANDA-NEWS. July 23, 2010. The Executive Board of the International Monetary Fund (IMF) completed the third review of
The Board today concluded the 2010 annual Article IV consultation as well, and a Public Information Notice will be released on this in due course.
Strong policy actions under the SBA have helped stabilize the economy, restore confidence, and limit spillovers from financial market turbulence elsewhere in
• adhering to the 2010 budget, identifying a menu of options for the 2011 budget that will put the deficit on a declining path consistent with meeting the Maastricht criteria and adopting the euro in 2014, and developing a new Fiscal Responsibility Law to help maintain budget discipline,
• strengthening the financial sector, including by developing a transformation plan for Mortgage and Land Bank, and
• removing tax and legal impediments to private debt restructuring, so that credit can help support a return to growth.
The SBA, which was approved on December 23, 2008 (see Press Release No. 08/345) for an amount equivalent to SDR 1.52 billion (about €1.79 billion, or USD 2.29 billion), entails exceptional access to IMF resources, amounting to 1,200 percent of Latvia's quota in the IMF. The IMF’s support is part of a coordinated effort with the European Union, Nordic governments, the World Bank, and other bilateral creditors that are providing the financing necessary to ensure that essential public services, especially support to those most severely hit by the crisis, can be maintained in the face of the sharp drop in government revenues.
Following the Executive Board's discussion on
“The Latvian authorities’ fiscal and financial sector reforms have helped stabilize the economy and insulate it from recent international financial market turmoil. Exports and industrial production are rebounding strongly. To support more rapid growth and to put euro adoption within reach, it will be important to ensure sustained fiscal adjustment, reduce unemployment, improve competitiveness through structural reforms, and restore the financial sector to health.
“Considerable fiscal adjustment is still needed to preserve debt sustainability and lower the deficit in line with the
“Competitiveness has improved significantly. Additional wage and price adjustment, together with structural reforms, would help close any remaining competitiveness gap, further enhance confidence in the quasi-currency board exchange rate regime, and boost growth by reorienting the economy toward the export sector.
“The authorities have taken steps to strengthen financial sector regulation and supervision, bank resolution procedures, credit and liquidity risk management rules, and emergency liquidity support. Plans to restructure two state-owned banks are also advancing. Given high levels of private sector indebtedness, measures are being taken to streamline insolvency and foreclosure procedures and review tax disincentives. These steps should encourage debt restructuring, stimulate new lending, and restore economic growth.”
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