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Brussels, 8 June 2011
Signature of the fourth Supplemental Memorandum of Understanding (SMoU) related to the EU financial assistance to Latvia
On 7 June 2011 a new Supplemental Memorandum of Understanding (the fourth SMoU) related to the EU financial assistance to Latvia was signed by the Economic and Monetary Affairs Commissioner Olli Rehn and the Latvian authorities. This follows a positive assessment by the Commission of the implementation of the adjustment programme and allows Latvia to draw a further tranche of the loan.
"The financial assistance provided by the EU, with the IMF and other international financial institutions, helps Latvia undertake the reforms which were and are necessary to build a strong, competitive and fair economy," said Economic and Monetary Affairs Commissioner Olli Rehn. "Over the past year Latvia has made further remarkable progress in correcting the existing macroeconomic and fiscal imbalances, and we look forward to a successful completion of the programme at the end of this year. It is, therefore, important that the Latvian authorities continue, inter alia, with the rigorous implementation of the 2011 budget, lay the ground for a 2012 budget aiming to a deficit well below 3% of GDP, make progress with adopting the new fiscal framework, implement the strategies for the sale or work-out of the state-owned banks, and undertake the structural reforms which are still in the pipeline."
Signature of the fourth SMoU reflects a positive assessment of the implementation of the conditions included in the previous SMoU. The assessment has been made by the Commission following the fourth review mission which took place, in cooperation with the IMF and other lenders, from 5-15 April 2011. The Member States have been consulted within the Economic and Financial Committee on 1 June 2011.
This step paves the way for an EU disbursement of up to EUR 100 million, which, however, the authorities have decided not to request, given the current financial position of Latvia, which is better than originally expected. The unused funds will be transferred to the next tranche to be released, upon fulfilment of conditions included in the new SMoU and if requested by the Latvian authorities, before the end of the assistance, which expires on 19 January 2012. It should be noted that given the overall stabilisation of the financial system reducing potential banking sector funding needs, the fourth SMoU establishes also that money currently deposited for banking sector support at the Bank of Latvia (around EUR 650 million) shall be progressively released for the purpose of financing general government needs, according to a defined schedule.
The fourth SMoU includes commitments on the budgetary consolidation for 2011-2012, specific economic conditions as regards reforms of fiscal governance and the strengthening of the financial sector including through the sale or work-out of the state-owned banks, as well as structural measures, like tackling the grey economy and reviewing the management of state-owned assets, improving management and performance of human resources and decision-making in the public administration, promoting more efficient use of energy and natural resources, implementing effective active labour market and education policies, strengthening competition, improving the business environment, and making public procurement more transparent.
For more information and the full text of the latest SMoU, see the link to the webpage on the Balance-of-Payment assistance for Latvia: