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Balance-of-payments assistance to Latvia

On 21 December 2011 the fifth and last Supplemental Memorandum of Understanding (SMoU) related to the EU financial assistance to Latvia was signed by the Commission's Vice President Olli Rehn and the Latvian authorities. This followed a positive assessment by the Commission of the implementation of the adjustment programme. The signature of the SMoU was the concluding step under the EU balance-of-payments assistance programme that expired on 19 January 2012. Latvia is now subject to post-programme surveillance until a large part of the EU-funded loans are repaid.

During the programme from 2009 to 2012, Latvia has made remarkable progress in overcoming the worst financial and economic crisis in its recent history. This has required a combination of strong fiscal consolidation and structural adjustment. The country is now in a much sounder position than before the start of the programme. Economic growth has resumed after the unprecedented fall in 2008 and 2009. According to the EU interim forecast presented on 23 February, Latvia's GDP grew by 5.3% in 2011 and is expected to expand by 2.1% in 2012. The renewed stability has been rewarded by the return of Latvia to international financial markets, with two successful issuances since mid-2011. Further reforms will be crucial to secure the important progress already made and address the remaining challenges.

Basic facts about the programme

In light of a rapidly deteriorating economic situation and concerns related to the health of the banking sector, the Latvian authorities applied in late 2008 to the EU, IMF and regional neighbours for financial assistance.

Following multilateral negotiations in December 2008, an agreement was reached to provide multilateral financial assistance to Latvia with an overall amount of €7.5 billion, consisting of the following contributions:

  • European Community, €3.1billion under a balance-of-payments assistance programme
  • International Monetary Fund, SDR 1.5 billion (around €1.7 billion) under an IMF Stand-by arrangement approved on 23 December 2008, amounting to about 1,200 percent of Latvia's quota;
  • Nordic countries (Sweden, Denmark, Finland, Norway and Estonia), €1.9 billion;
  • the World Bank, €0.4 billion;
  • the European Bank for Reconstruction and Development, the Czech Republic and Poland, €0.4 billion.

The Community financial assistance was to be made available during a period of three years from the day of the entry into force of the Council decision on providing Community medium-term financial assistance for Latvia, thus the programme expired on 19 January 2012. The EU financial assistance was eventually disbursed in four instalments for a total of €2.9 billion, instead of the six instalments and €3.1 billion initially scheduled:

  • €1.0 billion, released 25 February 2009 following signature of the Memorandum of Understanding;
  • €1.2 billion, released 27 July 2009;
  • €0.5 billion, released 11 March 2010;
  • €0.2 billion, released 21 October 2010;

The average interest rate on the amounts disbursed by the European Commission is around 3.2%, with repayments starting in 2014. In total, about €4.5 billion out of the €7.5 billion committed have been paid out. More detailed information about disbursements and applicable conditions, also by other creditors that participated in the programme, is available on the Q&A website of the Ministry of Finance of Latvia.

Key documents

Chronology of the balance-of-payments assistance programme in Latvia (most recent events first)

2012

1 March: European Commission (DG ECFIN) and the Bank of Latvia Seminar: EU Balance-of-Payments assistance for Latvia: foundations of success.

19 January: Latvia completes the EU balance-of-payments financial assistance programme. The post-programme surveillance will run until a large part of the EU-funded loans will be repaid.

2011

21 December: Signature of the fifth Supplemental Memorandum of Understanding (SMoU) related to the EU financial assistance to Latvia

8 December: Statement by the EC and the IMF on the Review Mission to Latvia

21 November: The Commission has given a positive reply to Latvia's request for the release of EUR 100 million from the subaccount at the Bank of Latvia earmarked for banking sector support to be used for financing general government needs. This follows fulfillment of underlying conditions, as specified in the fourth SMoU.

22 June: The Commission has given a positive reply to Latvia's request for the release of EUR 300 million from the subaccount at the Bank of Latvia earmarked for banking sector support to be used for financing general government needs. This follows fulfillment of underlying conditions, as specified in the fourth SMoU.

8 June: Signature of the fourth Supplemental Memorandum of Understanding (SMoU) related to the EU financial assistance to Latvia

15 April: Statement by the EC and IMF on the Review Mission to Latvia

2010

16 December: Joint statement at the conclusion of a joint IMF and European Commission staff visit to Latvia

21 October: Commission makes a €0.2 billion disbursement as part of the Balance of Payments support to Latvia

20 July: Signing of the Third Supplemental Memorandum of Understanding

25 May – 7 June: Commission and IMF joint review mission to Latvia, see concluding statement

11 March: Disbursement of the third instalment (€ 0.5 billion)

22 February: Signing of the Second Supplemental Memorandum of Understanding

27 January: Statement by Commissioner Almunia on Latvia

2009

27 July: Disbursement of the second instalment (€ 1.2 billion)

13 July: Signing of the First Supplemental Memorandum of Understanding

13 July: Council adopts Decision 2009/592/EC amending Council Decision 2009/290/EC providing Community medium-term financial assistance for Latvia

2 July: Commission decides to release second loan instalment

27 May – 17 June: Commission and IMF joint review mission to Latvia

25 February: Disbursement of the first instalment (€ 1.0 billion)

26-28 January: Signing of the Memorandum of Understanding pdf - 136 KB [136 KB]

20 January: Council adopts Decision 2009/289/EC on granting mutual assistance for Latvia and Council Decision 2009/290/EC providing Community medium-term financial assistance for Latvia

8 January: The European Commission proposes to the Council to provide medium-term financial assistance to Latvia as part of coordinated multilateral and bilateral financial assistance

2008

19 December: Joint statement by the Presidency of the ECOFIN Council and the Commission on providing EU medium-term financial assistance to Latvia

12 December: The Latvian authorities adopt "Economic Stabilisation and Growth Revival Programme", which forms the basis of the programme

Early December: EU financial assistance preparatory mission to Latvia, see statement on progress

22 November: Joint statement by the Presidency of the ECOFIN Council and the Commission on providing EU medium-term financial assistance to Latvia

November: In light of a rapidly deteriorating economic situation and concerns related to the health of the banking sector, Latvia turns to the EU, IMF and regional neighbours for financial assistance

Chronology of the balance-of-payments assistance programme in Latvia (most recent events first)

Other sources and information about the balance-of-payments assistance to Latvia

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Last update: 04/05/2012 | Top