Latvia may sign cuts into law on Monday

Bloomberg

"We are intending to speed up the procedure so the final vote could be on Monday," Prime Minister Valdis Dombrovskis, 37, said in an interview while attending a conference in Riga Friday. The vote had originally been planned for June 17.

The ruling coalition, which commands 64 seats in the 100-seat assembly, Thursday agreed to back cutting the budget by 10 percent. Latvia would run out of money by the autumn if parliament fails to pass the cuts into law, a condition attached to the continued inflow of bailout funds, Dombrovskis said in a June 10 interview. Labor unions and employer groups also signed Thursday’s agreement, Dombrovskis said. The Cabinet agreed late Thursday to cut state wages by 20 percent and pensions by 10 percent as part of a package amounting to a total of 500 million lati ($1 billion).

Latvia, which pegs the lats to the euro, is waiting to receive a 1.7 billion-euro ($2.4 billion) tranche of a 7.5 billion-euro loan it secured from the International Monetary Fund, or IMF, and the European Commission in December. The IMF withheld a 200 million-euro payment in March after lawmakers failed to commit to expenditure cuts.

The Baltic economy contracted 18 percent in the first quarter, the European Union’s severest recession, following a 10.3 percent slump in the previous three months. The budget cuts "are very unpopular and touch practically all areas," Dombrovskis said Thursday night. The other alternatives would have been "more negative." The five-party ruling coalition wanted to avoid tax increases that would burden businesses, he said.

Latvia is also in talks with the European Bank for Reconstruction and Development, the European Investment Fund and the European Investment Bank to try to boost lending,Dombrovskis said at Friday’s conference.