The EU balance of payments assistance programme to Latvia was agreed in December 2008. Multilateral financial assistance of €7.5 billion was agreed, of which €4.5 billion was eventually paid out. The programme expired on 19 January 2012.
From 20 January 2012 to 16 January 2015 Latvia was subject to post-programme surveillance (PPS). The PPS has expired, as Latvia has repaid 75% of the EU loan. In March 2014, Latvia repaid the first tranche of €1 billion. The second tranche of €1.2 billion was repaid on 16 January 2015.
Overview of disbursements
The EU financial assistance was eventually disbursed in 4 instalments at a total of €2.9 billion, instead of the 6 instalments of €3.1 billion as initially scheduled:
- €1 billion, released 25 February 2009 following signature of the memorandum of understanding;
- €1.2 billion, released 27 July 2009;
- €0.5 billion, released 11 March 2010;
- €0.2 billion, released 21 October 2010;
The average interest rate on the amounts paid out by the European Commission is around 3.2%, with repayments starting in 2014. In total, about €4.5 billion out of the €7.5 billion committed have been paid out.
The balance of payments programme for Latvia
In light of a rapidly deteriorating economic situation and concerns related to the health of the banking sector, the Latvian authorities applied for financial assistance to the EU, International Monetary Fund (IMF) and regional neighbours in late 2008.
The financial assistance package was provided subject to a strong commitment from the Latvian authorities to implement an ambitious programme of
- fiscal system reforms
- financial system reforms
- structural reforms
The reform programme aimed to facilitate external and internal adjustments, to stabilise the economy and to restore economic policy credibility.
Following negotiations in December 2008, an agreement was reached to provide financial assistance to Latvia with an overall amount of €7.5 billion, consisting of the following contributions:
- European Community, €3.1billion under a balance of payments assistance programme
- International Monetary Fund, SDR1.5 billion (around €1.7 billion) under an IMF Stand-by arrangement approved on 23 December 2008, amounting to about 1,200% of Latvia's quota
- Sweden, Denmark, Finland, Norway and Estonia €1.9 billion
- World Bank, €0.4 billion
- European Bank for Reconstruction and Development, Czech Republic and Poland, €0.4 billion
The Community financial assistance was to be made available during a period of 3 years from the day of the entry into force of the Council decision on providing Community medium-term financial assistance for Latvia.
On 21 December 2011 the fifth and last supplemental memorandum of understanding (SMoU) related to the EU financial assistance to Latvia was signed by the then Commission's Vice President Olli Rehn and the Latvian authorities. This followed a positive assessment by the Commission of the implementation of the adjustment programme. The signature of the SMoU was the concluding step under the programme, which officially expired on 19 January 2012.
Memorandum of Understanding (MoU) (28.01.2009)
Council Decision 2009/290/EC providing Community medium-term financial assistance for Latvia (19.01.2009)
Council Decision 2009/592/EC amending Decision 2009/290/EC of 19 January 2009 providing Community medium-term financial assistance for Latvia (13.07.2009)
Council Decision 2009/289/EC on granting mutual assistance for Latvia (20.01.2009)
Chronology of the balance of payments assistance programme in Latvia
19 January: Latvia completes the EU balance of payments financial assistance programme. The post-programme surveillance will run until a large part of the EU-funded loans have been repaid.
21 December: Signature of the fifth supplemental memorandum of understanding (SMoU) related to the EU financial assistance to Latvia
21 November: The Commission approve Latvia's request for the release of €100 million from the Bank of Latvia earmarked for banking sector support to be used for financing general government needs. This followed fulfilment of underlying conditions, as specified in the fourth SMoU.
22 June: The Commission approve to Latvia's request for the release of €300 million from the subaccount at the Bank of Latvia earmarked for banking sector support to be used for financing general government needs. This follows fulfilment of underlying conditions, as specified in the fourth SMoU.
20 July: Signing of the Third Supplemental Memorandum of Understanding
25 May – 7 June: Commission and IMF joint review mission to Latvia, see concluding statement
22 February: Signing of the Second Supplemental Memorandum of Understanding
27 January: Statement by Commissioner Almunia on Latvia
13 July: Signing of the First Supplemental Memorandum of Understanding
13 July: Council adopts Decision 2009/592/EC amending Council Decision 2009/290/EC providing Community medium-term financial assistance for Latvia
27 May – 17 June: Commission and IMF joint review mission to Latvia
25 February: Disbursement of the first instalment (€ 1.0 billion)
26-28 January: Signing of the Memorandum of Understanding
20 January: Council adopts Decision 2009/289/EC on granting mutual assistance for Latvia and Council Decision 2009/290/EC providing Community medium-term financial assistance for Latvia
12 December: The Latvian authorities adopt the economic stabilisation and growth revival programme, which forms the basis of the programme
Early December: EU financial assistance preparatory mission to Latvia (see statement on progress)
November: In light of a rapidly deteriorating economic situation and concerns related to the health of the banking sector, Latvia turns to the EU, IMF and regional neighbours for financial assistance
Speech by Gabriele Giudice, Mission Chief for the EU financial assistance to Latvia, at the IMF-Bank of Latvia conference "Against the Odds: Lessons from the Recovery in The Baltics", Riga, 5 June 2012.
Interview for the Latvian TV Program Viss Notiek by Marco Buti and Gabriele Giudice (with English subtitles) at the country seminar EU Balance of payments assistance for Latvia: foundations of success", Brussels, 1 March 2012.
Interview for the Latvian TV Program De Facto by Gabriele Giudice, Mission Chief for the EU financial assistance to Latvia, Brussels, 2 December 2011.
Presentation:The Adjustment in Latvia by Gabriele Giudice, Mission Chief for the EU financial assistance to Latvia, at the ELIAMEP conference in Poros, Greece, 8 July 2011.
To join the euro area Latvia needs to stabilise its economy by carrying out structural reforms, by Gabriele Giudice, Mission Chief for the EU financial assistance to Latvia, interview to the Baltic News Service, Riga, 3 December 2010
Interview with the Latvian weekly journal IR by Gabriele Giudice, mission chief for the EU financial assistance to Latvia, Brussels, 24 November 2010
An assessment of Latvia's economic policy and needed responses, by Gabriele Giudice, mission chief for the EU financial assistance to Latvia, at the Bank of Latvia Conference Latvia beyond the crisis: towards sustainable economic growth", Riga, 20 October 2010.
You have too many envelopes by Gabriele Giudice (Head of Unit, DG ECFIN, European Commission). Interview with the daily newspaper Biznes i Baltija, 22 March 2010 (translation from Russian)
On the road to recovery by Iveta Šulca (Head of the Representation of the European Commission in Latvia) and Gabriele Giudice (Head of Unit, DG ECFIN, European Commission). Article in the daily newspaper Diena, 5 March 2010 (translation from Latvian)