Dombrovskis Says Latvia’s Austerity Program May Ease as Economy Recovers
By admin at 9 August, 2010, 6:34 pm
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Latvia’s economic recovery may mean less austerity in next year’s budget, Prime Minister Valdis Dombrovskis said.
“We are quite clearly on track as regards the state budget,” Dombrovskis said yesterday during an interview with Bloomberg Television in Riga, Latvia’s capital. “The bulk of the fiscal consolidation is already over.”
Latvia’s economy is rebounding from last year’s 18 percent slump as manufacturing and exports advance. Dombrovskis, who turns 39 tomorrow, said growth probably accelerated in the second quarter after economic production expanded 0.3 percent from the previous period in the first three months of the year.
The Baltic country turned to a group led by the European Commission and International Monetary Fund for a 7.5 billion- euro ($9.9 billion) loan in 2008 after its second-biggest bank collapsed. Dombrovskis’ government approved spending cuts and revenue increases equal to 10 percent of gross domestic product to meet terms of the loan and avoid devaluing its currency.
Those measures helped keep the budget deficit to 9 percent of GDP last year, less than the 10 percent limit set by the lenders. The European Union limit is 3 percent.
Dombrovskis, whose minority coalition faces parliamentary elections in October, said the recovery program will go ahead even if his government loses.
“Of course we are looking to win the election but, in any case, any new government will be confronted with the same issues. They will have a substantial budget deficit,” he said.
Trailing in Polls
Dombrovskis’ Unity party was in second place in June with 12.3 percent support, behind opposition party Harmony Center at 18.8 percent, according to a survey of 1,022 people by pollster SKDS. More than 43.4 percent of those who took part in the survey, which had a margin of error of 3 percentage points, said they were undecided or didn’t plan to vote.
Latvia opted to cut state wages, reduce expenditures and raise taxes to restore competitiveness rather than devalue the currency because of the high level of foreign currency borrowing. With the lats pegged to Europe’s single currency, about 85 percent of all loans are denominated in euros.
Society has shown a “degree of appreciation” that the austerity measures were necessary and Latvia is on the path to recovery, Dombrovskis said.
“We do not intend to go for any massive additional wage reduction in the public sector,” he said. “In the first quarter of this year our wages in the public sector are down by some 25 percent. That’s quite a substantial decrease and we do not intend to go for an additional substantial decrease.”
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