## Transcript of Conference Call On Latvia, Resident Representative in Riga

_IMF News, July 22, 2010_

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## Bibliographic details
- Published: July 22, 2010

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### IMF Board decisions and immediate actions
- IMF Executive Board completed the Third Review of Latvia’s program and approved the disbursement of around 105 million euros.
- The Letter of Intent (authorities’ policy intentions) was released just over an hour before the call.
- The European Commission completed its review earlier in the week; IMF and EC cooperate closely on program issues.
- The IMF Board also concluded the 2010 Article IV consultation; a public information notice was expected “probably later today or tomorrow.”

### Economic developments and key indicators
- Industrial production in May is up 13 percent year-on-year.
- Retail sales since the end of last year are up 5.5 percent, seasonally adjusted.
- Exports grew 35 percent year-on-year in May.
- Registered unemployment has started to come down to just over 15 percent.
- Unemployment on the labor force survey measure is around 20 percent.
- Current account position described as a “massive surplus” at the time of the call.
- Reserves are flowing in and international reserves are described as “strong.”

### Policy measures and reform agenda
- Government has implemented very strong policy actions under the Stand-by Arrangement, achieving very large savings on the budget deficit while increasing social safety net spending, financing workplace employment schemes, temporary jobs programs, and training.
- Main steps agreed:
  - Stick to the 2010 budget.
  - Prepare a menu of options for the 2011 budget to put the deficit on a declining path so that the Maastricht criteria can be met in 2012.
  - Euro adoption targeted in 2014.
  - Strengthen the financial sector, including developing a transformation plan for the mortgage and land bank.
  - Encourage private debt restructuring by removing tax barriers and legal barriers.
- Emphasis that closing the remaining competitiveness gap will require further wage and price adjustment, productivity gains, and structural reforms—consistent with the authorities’ fixed-exchange-rate regime.

### Banking sector, foreign bank commitments, and external support
- Several large foreign-owned banks (identified as the main foreign-owned banks, likely the top four) sent letters to the FCMC restating their commitment to remain involved in Latvia and to meet regulatory requirements.
- Observations on foreign bank behavior:
  - No disorderly de-leveraging or large balance-of-payments outflows from these banks.
  - Banks’ exposure dynamics noted as “something like 15 percent” compared to a fall in output of 18 percent (reported as an illustrative comparison in the call).
  - Recapitalization by foreign banks noted as upwards of 800 million euros.
- Available external support noted as up to 7.5 billion euros; government estimated it might need only 5 billion euros of the total rescue package. IMF view: availability up to 7.5 billion euros is important; drawing less is a positive signal of strength.

### Forecasts, outlook, and risks
- IMF and European Commission growth number for 2010 cited as minus 3.5 percent.
- IMF expected to be “cautiously optimistic” and to revise forecasts upwards in the coming weeks and months, but emphasized uncertainty given European developments.
- Short-term outlook: growth expected to pick up in the second half of 2010 and into 2011; the minus 3.5 percent for 2010 reflects recession at the end of 2009.

### Engagement with authorities and program modality
- Program reviews occur every few months; each review results in a new Letter of Intent that sets out the government’s intentions.
- IMF expects to work closely with the incoming government; “renegotiating all the deals” is not anticipated—rather, the new government will decide on the fiscal adjustment path using the menu of options prepared by the Ministry of Finance and sign a new Letter of Intent.
- Program goals highlighted: reduce deficit to 6 percent next year and to 3 percent the year after that to ensure debt sustainability and timely euro adoption.

*Transcript of conference call held in Washington, D.C., Thursday, July 22, 2010. Mark Griffiths, Mission Chief for Latvia, and David Moore, Resident Representative in Riga, participated.*

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## References

- [Republic of Latvia and the IMF](http://www.imf.org/external/country/LVA/index.htm)
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- [PRESS CENTER](http://presscenter.imf.org/)
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_Source: https://www.imf.org/en/news/articles/2015/09/28/04/54/tr072210_