LATVIA’S PRIME minister said yesterday he was sure his country would get further loans to help fend off state bankruptcy and devaluation, but the head of the International Monetary Fund (IMF) expressed concern about the effect of planned budget cuts.

Latvia’s woes have rattled markets in eastern Europe and Sweden due to fears of a devaluation, but these worries have receded and the Latvian currency (lat) has firmed. In a turnabout, the central bank last week sold lats and bought euros.

The Latvian finance minister yesterday warned that IMF and the EU loans depended on parliament approval for budget cuts to pensions and state salaries, and warned deputies not to meddle with the finance bill.

“Of course we are working on getting this loan, and I am sure that we will get it,” prime minister Valdis Dombrovskis told public LTV television.

Latvia is expecting €1.2 billion in loans, including €1 billion from the EU, in late June or early July, part of a €7.5 billion rescue agreed with the IMF and EU in December.

To win the new funds and ride out an expected GDP drop of nearly 20 per cent this year, Latvia has pledged to slash its budget by 500 million lats (€711.5 million), including cuts to pensions and public salaries.

“The IMF is especially concerned about the fact that the necessary measures which have to be undertaken to fix the important budget deficit should not hurt the poor primarily,” IMF chief Dominique Strauss-Kahn said on a visit to Kazakhstan.

Finance minister Einars Repse issued a strong warning to parliament, saying he could not guarantee the loans, though he was optimistic of them if the budget was passed.

“If we do not accept some of these documents or change something to raise the deficit ... then, cheerio, we can immediately forget about any loan and we are left with our own resources.”

He said even with the budget cuts the deficit could hit 11.6 per cent of gross domestic product (GDP) this year in the worst case. – (Reuters)