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BANKING

Baltics: Latvia laments boom-bust cycle

Dramatic fall in growth; Bankruptcy looms without bailout funds

John Lipsky, IMF

"We will continue to work closely with the Latvian authorities"

John Lipsky, IMF

Latvia faces a summer of discontent following the admission by prime minister Valdis Dombrovskis that without further financial assistance the Baltic republic faces the real possibility of collapsing into bankruptcy. Dombrovskis says that Latvia will probably be unable to pay pensions and wages by August unless it receives further help from international donors. In an attempt to secure much-needed funds from a range of lenders such as the EU and the IMF, in late June the Latvian parliament approved sweeping budget cuts to the 2009 budget of Lats500 million ($994 million), including pension and public-sector salary reductions. The government hopes these measures will clear the way for the second €1.2 billion portion of a total €7.5 billion aid package from the multilaterals.

The latest economic data for the embattled Baltic republic make for grim reading, with GDP shrinking by a huge 18% in the first quarter, the worst performance by any member state of the EU. According to Lars Christensen, chief emerging market analyst at Danske Bank in Copenhagen, economic developments "clearly indicate that a worst-case scenario for Latvia’s medium-term outlook has become a reality".

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