Cablegate: 7.5 Billion Euro Assistance Package to Latvia Announced

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E.O. 12958: N/A
TAGS: ECON EFIN ETRD LG
SUBJECT: 7.5 billion euro assistance package to Latvia announced

1. A December 19th statement by the French EU Presidency and the
European Commission on the medium-term financial assistance to
Latvia for the first time made public the amount and sources of the
planned international financial assistance package to Latvia. The
package is intended to total EUR 7.5 billion through the first
quarter of 2011. The European Union plans to provide the majority of
the funds (EUR 3.1 billion), followed by the Nordic countries of
Sweden, Denmark, Finland and Norway (EUR 1.8 billion), the
International Monetary Fund (EUR 1.7 billion), the European Bank of
Reconstruction and Development, the Czech Republic, Poland, and
Estonia (EUR 0.5 billion), and the World Bank (EUR 0.4 billion).

3. The statement stresses the conditionality of the assistance funds
to the implementation of a comprehensive economic reform and
restructuring program. It also highlights the fact that the European
Commission and the ECOFIN may impose additional requirements and
conditions as it monitors the situation and follows the
implementation procedure. The central element of the program will be
maintaining the existing currency peg.

4. The news of the loan amount was received in Latvia with little
surprise. Officials had previously indicated that the government
will need at least EUR 1.9 billion to cover budget deficits in the
upcoming years, EUR 0.9 billion to restructure government debt,
possibly another billion Euros to prop up the troubled Parex bank,
and significant additional amounts to promote economic activity, and
raise competitiveness. News that devaluation of the Lat is
currently off the table, come as great relief for most of the
Latvian public.

Rogers

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