Friday, July 13, 2007

EU and Latvia

In bloomberg today:

Latvia Should `Actively' Manage Budget, Almunia Says

July 12 (Bloomberg) -- Latvia needs to actively manage its fiscal spending and moderate wage growth, said European Union Monetary Affairs Commissioner Joaquin Almunia.

Latvia leads the European Union in economic growth, the size of its current account deficit and inflation. The combination prompted Standard& Poor's to cut the country's rating to BBB+ on May 17.

``A budgetary surplus should be achieved as soon as possible'' Almunia said at a press conference in the capital Riga today. Latvia also ``needs to moderate the evolution of wage growth.'' Wages grew an annual 33 percent in the first quarter.

Latvia is struggling to slow inflation, the fastest in the European Union, which is spurred by accelerating economic and wage growth. The government passed measures to tighten credit, cut fiscal spending and slow the real-estate market in March and May to stem inflation and prepare to adopt the euro later on.

``We were very happy to hear about the anti-inflation plan,'' Almunia said at a second press conference today. ``But this is not the end, more efforts are required. I'm impressed by the dynamism of the Latvian economy.''

Latvia, he said, is ``one of the most impressive cases of success'' after joining the EU.

Credit Growth

And while credit growth accounts for one-third of consumption, Latvia needs to ``continue to discuss ways to moderate credit growth,'' he said.

Lending grew an annual 77 percent in May, down from 89 percent in January, Latvia's central bank Governor Ilmars Rimsevics said today at a press conference. Real-estate prices in Riga have also stabilized, he said, since the measures were introduced.

The government said it would balance its budget this year, after having planned for a deficit of 1.4 percent of gross domestic product. The International Monetary Fund said the Baltic country should plan for a surplus of 2.25 percent this year, and 4 percent next year, to cut inflation.

``Considering our rapid growth pace, the IMF has suggested that we should look for a budgetary surplus of 4 percent,'' Latvian Finance Minister Oskars Spurdzins said at the press conference.

`Big Picture'

``Honestly, it's a big figure considering all the needs that the Latvian economy has,'' said Spurdzins. ``I wouldn't say, `No,' it's not achievable, but we should be very careful about when making such forecasts.''

Latvia's economy grew 11.2 percent in the first quarter, its eighth consecutive three-month period in which gross domestic product expanded more than 10 percent. Consumer prices rose by an annual 8.8 percent in May.

Loose credit has boosted a demand boom for imports widening the current account deficit. The deficit narrowed in the first quarter to 25.7 percent of gross domestic product from 26.3 percent of GDP in the fourth quarter.

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