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01/03/2012 : Country workshop: EU Balance-of-Payments assistance for Latvia: Foundations of Success

The country seminar is organized by the European Commission, Directorate General for Economic and Financial Affairs, and the Bank of Latvia. It is part of a series of Country Workshops that DG ECFIN has hosted over the last few years to deepen the debate on topics of particular relevance.

This event brings together the highest-level representatives of Latvia, the international institutions [and bilateral lenders] involved in the Latvian rescue, experts from both academia and the private sector. Two policy panels and a roundtable discussion will provide insights into the political and policy aspects of the adjustment, discuss lessons learnt – also from a broader European perspective – and consider the way forward for Latvia.

Video recording of the conference is availablehere.

Venue

Berlaymont Building, Schuman Conference Room
Rue de la Loi / Wetstraat 200
1049 Bruxelles/Brussel

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Contact

For further information contact us at ECFIN-LV-SEMINAR@ec.europa.eu

Background

The Latvian economy was the fastest growing in the EU from 2000 to 2007. However, many imbalances were accumulated in the boom period. Consequently, the economy experienced the steepest contraction in the EU in 2008-09 with massive job and wage cuts. The government deficit widened from 0.3% of GDP in 2007 to 4.2% in 2008 and 9.7% in 2009. To address the crisis, the country reached an agreement with the EU and the IMF on a medium-term financial assistance programme in December 2008, and a three-year Balance of Payments (BoP) assistance was provided by the EU to Latvia on 20 January 2009. The national authorities and the international lenders agreed on a comprehensive adjustment programme, preserving the existing exchange rate arrangements and relying on substantial fiscal consolidation, financial sector stabilisation, a wide range of structural reforms, and a strengthening of the social safety net to protect the most vulnerable.

Despite pronounced scepticism since the outset and particularly at the depth of the crisis in mid-2009, the economy moved back to growth and job creation in 2010-11 at a pace exceeding expectations. BoP financing was no longer needed since October 2010 and the government re-entered international bond markets in June 2011, well ahead of schedule. The programme was successfully completed in January 2012. While Latvia can now 'stand on its own legs', a number of challenges remain, such as completing the fiscal consolidation and reducing the structural unemployment and the income inequality that is among the highest in the EU. Further on, inflation risks and remaining structural bottlenecks may continue to weigh on competitiveness while unfavourable demographic trends pose threats to potential growth and fiscal sustainability in the long run.

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