There was joy on Sunday night in Latvia as reports suggested the government had — after a week-long stalemate — finally agreed upon terms for the country’s second instalment of IMF financing.
But that wasn’t to last long. As Reuters reported on Monday:
RIGA, July 27 (Reuters) – The largest of the five parties in Latvia’s ruling coalition threw doubt on Monday on a deal thrashed out with the International Monetary Fund to free up further loans for the crisis-hit nation. Latvia has been struggling to win the release of more funds under a 7.5 billion euro ($10.7 billion) rescue agreed with the International Monetary Fund (IMF) and European Union last year to avoid a currency devaluation and plug its budget deficit.
Leaders struck a deal with the IMF at the weekend to release a further 200 million euros that it also hopes will help secure more money from other lenders. But People’s Party leader Mareks Seglins threw a wrench in the works on Monday by telling the Baltic news agency BNS his party would not back an accord with the Washington-based lender.
The party said in a statement later it had several questions for Prime Minister Valdis Dombrovskis and Finance Minister Einars Repse about the pact, and would seek to meet them on Wednesday. A spokeswoman for the prime minister said a meeting had been set for 5 p.m. (1400 GMT) on Monday.
Danske Bank’s chief analyst Lars Christensen commented on the about turn:
This is very bad news. Not only does this show that Dombrovskis does not really have a mandate from the different coalition parties to negotiate with the IMF, but it should also raise serious concerns within the IMF and the EC about the political situation in Latvia. Both the IMF and the EC have for a long time demanded broad political backing for the fiscal reforms. The ongoing farce about the IMF deal shows that such a consensus is nonexistent. This makes it increasingly hard for the IMF to continue negotiations — and it will probably also raise serious concerns both in Brussels and Stockholm.
In the local Latvian media it is reported that the People’s Party’s reluctance to support the IMF deal is a result of IMF’s apparent demands to stop all public-private partnerships (PPP) in Latvia. We believe it is very likely that this has indeed been a demand from the IMF, as observers have seen this as a key source of extracting “rent” from EU-sponsored infrastructure projects. To put it in another way — PPP has been perceived as a source of corruption in Latvia for years.
Related links:
Latvian banks face reserve shortfall – FT Alphaville
Trouble at Parex – FT Alphaville
Latvia jitters creeping back – FT Alphaville