Brussels, 25 February 2009
Today's transfer by the Commission of €1 billion is the first instalment in the medium-term financial assistance to Latvia of up to € 3.1 billion agreed by ECOFIN ministers in January, provided on strict conditions of Latvia's pursuit of an ambitious programme of economic and budgetary adjustment. The assistance is part of an internationally co-ordinated package of up to €7.5 billion, all subject to such stringent conditionality.
"EU support to Latvia underlines our solidarity to our Member States. At the same time, everyone should be clear that this support is subject to Latvia's implementing its programme of economic and budgetary adjustment adopted in December, and if necessary taking additional adjustment measures. We expect the new Government to commit fully to the programme. The Commission is monitoring such implementation very closely, also in collaboration with our partners" said Joaquin Almunia, Commissioner for Economic and Financial Affairs.
The support is being provided in conjunction with the International Monetary Fund (€1.7 billion), the Nordic countries (Sweden, Denmark, Finland, Estonia and Norway) (€1.9 billion together) and the World Bank (€0.4 billion). The European Bank for Reconstruction and Development, the Czech Republic and Poland will also provide a total of €0.4 billion, bringing the total to up to € 7.5 billion over the period to the first quarter of 2011.
The financial assistance is conditional on the implementation of a comprehensive economic policy programme. The financial assistance and the policy programme are designed to enable the economy to withstand short-term liquidity pressures while improving competitiveness and supporting an orderly correction of imbalances in the medium term, hence bringing the economy back on a sound and sustainable footing.
The programme is based on maintaining Latvia's existing exchange rate peg, which will remain a key policy anchor going forward, thereby underpinning systemic stability.
The economic policy conditionality attached to the EU assistance was set out in a Council decision adopted in January 2009 and further specified in a Memorandum of Understanding concluded with the Latvian authorities (see http://ec.europa.eu/economy_finance/thematic_articles/article13872_en.htm). The first instalment of the loan is being paid on the fulfilment of the condition of the Memorandum of Understanding being signed. This happened on 28 January 2009. The MoU contains policy conditions in four areas: fiscal consolidation, fiscal governance reform, financial sector regulation and supervision and structural reforms. The Commission in collaboration with the Economic and Financial Committee is monitoring regularly and closely that the economic policy conditions attached to the financial assistance are implemented and may request additional measures when and if circumstances so require.
Support is provided under Council Regulation 332/2002 which provides for a medium-term financial assistance facility for non-euro area EU Member States' balance of payments (BoP). The ECOFIN Council approved such assistance to Latvia at their January meeting.
The EU in November also agreed to grant a BoP loan to Hungary of €6.5 billion. On a proposal by the Commission, the Council decided to increase early December the overall financial assistance ceiling in Regulation 332/2002 to €25 billion from an original €12 billion (see IP/08/1612).