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Latvia: IMF Urge Cuts In Spending

By Katya Cengel

Riga, 25 May 1999 (RFE/RL) -- The International Monetary Fund (IMF) is urging Latvia to cut spending and speed up privatization.

An IMF delegation to the country last week said the countrys proposed budget deficit for this year of almost three percent of gross domestic product (GDP) is too big. Last year, the country had a balanced budget.

The disagreement over the deficit prevented the signing of a new economic policy memorandum with the IMF and has raised questions about the health of the Latvian economy. An earlier memorandum with the Fund lapsed in March. Talks on the new memorandum are expected to resume in September.

The IMF is recommending that Latvia cut its proposed 1999 budget deficit to 0.5 to 1.0 percent of GDP.

Sandris Grasis, adviser to the finance minister, says Latvia understands the IMF recommendations but believes the deficit level the Fund is seeking is too low. Grasis considers a 1 to 2 percent deficit more realistic. He says that if Latvia were to have less than a 1 percent deficit the only thing the government would be able to do is "pay pensions and keep the heating batteries warm."

The government says that its doing what it can to keep the IMF content. Martins Bondars, head of Prime Minister Vilis Kristopans office, says the premier has sent a note to the finance minister asking him to prepare for reducing expenditures. The IMF representative in Latvia, Dimitris Demekas, acknowledges that the government has agreed on the need to curtail public spending. But he adds that the government is not prepared to make the deep cuts the Fund wants.

The IMF last week also voiced concern at what it considers the slow rate of privatization in Latvia. On that issue, Demekas says the government did a good job with selling off the Latvian Shipping Company, whose privatization terms were approved two weeks ago. But he wonders whether the same will be done with the electricity company Latvenergo.

Last week (May 20), parliament appointed a special task minister, Janis Bunks, to carry out administrative and territorial reforms in response to the IMFs concerns about the slow implementation of public-sector reform.

The Latvian economy has slowed down in part because of Russias economic crisis last year. But Finance-Ministry official Grasis says the economy should start recovering soon.