Considerations on COM(2009)4-2 - EU medium-term financial assistance for Latvia - Main contents
Please note
This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2009)4-2 - EU medium-term financial assistance for Latvia. |
|---|---|
| document | COM(2009)4  |
| date | January 20, 2009 |
| (2) | Against a background of very high external financing needs, Latvian capital and financial markets have recently come under pressure, reflecting a general deterioration in market sentiment, and increasing concerns about the health of the Latvian economy given its large imbalances in terms of wide external deficit, weakening public finances and high rates of cost and price inflation. The Latvian banking sector has experienced serious liquidity and confidence problems. The level of foreign currency reserves has decreased as the central bank intervened to preserve the currency peg. |
| (3) | Latvia’s total external financing needs up to the first quarter of 2011 are estimated at EUR 7,5 billion. |
| (4) | It is appropriate to provide Community support to Latvia of up to EUR 3,1 billion under the Facility providing medium-term financial assistance for Member States’ balance of payments established by Regulation (EC) No 332/2002. That assistance should be provided in conjunction with a loan from the International Monetary Fund (IMF) of SDR 1,5 billion (1 200 % of Latvia’s IMF quota, around EUR 1,7 billion) under an IMF Stand-by arrangement approved on 23 December 2008. The Nordic countries (Sweden, Denmark, Finland, Estonia and Norway) are to contribute EUR 1,9 billion together, the World Bank — EUR 0,4 billion, the European Bank of Reconstruction and Development, the Czech Republic and Poland — a total of EUR 0,4 billion, bringing the total to EUR 7,5 billion over the period up to the first quarter of 2011. |
| (5) | The Community assistance should be managed by the Commission. The specific economic policy conditions agreed with the authorities of Latvia after consultation of the EFC should be laid down in a Memorandum of Understanding. They should include, inter alia, measures intended to stem immediate liquidity pressures, to restore long-term stability by strengthening the banking sector, to correct fiscal imbalances and to adopt domestic policies that will improve competitiveness. The measures should include an immediate and sustained fiscal consolidation, a comprehensive bank resolution strategy, a strengthened crisis management capacity of regulatory authorities, comprehensive structural reforms, as well as other important measures. The detailed financial terms should be laid down by the Commission in the Loan Agreement. |
| (6) | The assistance should be provided with a view to stemming immediate liquidity pressures and conditional on policies to restore long-term stability by strengthening the banking sector, correcting fiscal imbalances and adopting domestic policies that will improve competitiveness, while maintaining the narrow-band exchange rate at its existing central rate, |