2009/290/EC: Council Decision of 20 January 2009 providing Community medium-term financial assistance for Latvia
Date: 2009-01-20
Institutions: Council of the European Union
Subjects: Community loan, EU programme, European social policy, Latvia, balance of payments, economic recession, economic support

25.3.2009

EN

Official Journal of the European Union

L 79/39

COUNCIL DECISION

of 20 January 2009

providing Community medium-term financial assistance for Latvia

(2009/290/EC)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty
Community,

establishing the European

Having regard to Council Regulation (EC) No 332/2002 of
18 February 2002 establishing a facility providing medium-
for Member States’ balance of
term financial
payments (1) and in particular Article 3(2) thereof,

assistance

(5)

Having regard to the proposal from the Commission made after
consulting the Economic and Financial Committee (EFC),

Whereas:

By Decision 2009/289/EC (2),
grant mutual assistance for Latvia.

the Council decided to

sentiment,

in market

Against a background of very high external financing
needs, Latvian capital
and financial markets have
recently come under pressure, reflecting a general de-
terioration
increasing
the Latvian economy
concerns about
given its large imbalances in terms of wide external
deficit, weakening public finances and high rates of
cost and price inflation. The Latvian banking sector has
experienced serious liquidity and confidence problems.
The level of foreign currency reserves has decreased as
the central bank intervened to preserve the currency peg.

the health of

and

Latvia’s IMF quota, around EUR 1,7 billion) under an IMF
Stand-by arrangement approved on 23 December 2008.
The Nordic countries (Sweden, Denmark, Finland, Estonia
and Norway) are to contribute EUR 1,9 billion together,
the World Bank — EUR 0,4 billion, the European Bank
of Reconstruction and Development, the Czech Republic
and Poland — a total of EUR 0,4 billion, bringing the
total to EUR 7,5 billion over the period up to the first
quarter of 2011.

The Community assistance should be managed by the
Commission. The specific economic policy conditions
agreed with the authorities of Latvia after consultation
of the EFC should be laid down in a Memorandum of
Understanding. They should include, inter alia, measures
intended to stem immediate liquidity pressures, to restore
long-term stability by strengthening the banking sector,
to correct
imbalances and to adopt domestic
The
improve
policies
measures should include an immediate and sustained
fiscal consolidation, a comprehensive bank resolution
strategy, a strengthened crisis management capacity of
regulatory authorities, comprehensive structural reforms,
as well as other
important measures. The detailed
financial terms should be laid down by the Commission
in the Loan Agreement.

fiscal
that will

competitiveness.

(6)

The assistance should be provided with a view to
stemming immediate liquidity pressures and conditional
on policies to restore long-term stability by strengthening
imbalances and
the banking sector, correcting fiscal
adopting domestic policies that will
improve competi­
tiveness, while maintaining the narrow-band exchange
rate at its existing central rate,

Latvia’s total external
quarter of 2011 are estimated at EUR 7,5 billion.

financing needs up to the first

HAS ADOPTED THIS DECISION:

It is appropriate to provide Community support to Latvia
of up to EUR 3,1 billion under the Facility providing
medium-term financial assistance for Member States’
balance of payments established by Regulation (EC) No
should be provided in
332/2002. That
conjunction with a
International
Monetary Fund (IMF) of SDR 1,5 billion (1 200 % of

loan from the

assistance

Article 1

1.
The Community shall make available to Latvia a medium-
term loan amounting to a maximum of EUR 3,1 billion, with a
maximum average maturity of seven years.

(1) OJ L 53, 23.2.2002, p. 1.
(2) See page 37 of this Official Journal.

The Community financial

2.
shall be made
available during a period of three years starting from the first
day after the entry into force of this Decision.

assistance

(1)

(2)

(3)

(4)

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Official Journal of the European Union

25.3.2009

Article 2

1.
The assistance shall be managed by the Commission in a
manner consistent with Latvia’s undertakings and recommen­
dations by the Council. Those conditions shall be laid down
in a Memorandum of Understanding. The detailed financial
terms shall be laid down by the Commission in the Loan
Agreement.

The Commission shall,

2.
in collaboration with the EFC,
verify at regular intervals that the economic policy conditions
attached to the assistance are fulfilled. The Commission shall
keep the EFC informed of possible
the
borrowings or restructuring of the financial conditions.

refinancing of

(a) adoption of a clearly-set medium-term fiscal programme
designed to lower by 2011 the general government deficit
to not more than the Treaty reference level of 3 % of GDP;

(b) execution of

the budget

for 2009 as amended by the
supplementary budget adopted 12 December 2008 (and
to be submitted in detail by the end of March 2009),
targeting a general government cash flow deficit of no
higher than 5 % of GDP or 5,3 % in ESA 95 terms;

(c) reduction of average public sector remuneration in nominal
terms in 2009 by at least 15 % relative to the original
14 November 2008 budget and a further 2 % in 2010-11;

3.
Latvia shall be ready to adopt and implement additional
consolidation measures to stabilise the economy, in case such
measures will be necessary during the assistance programme.
The Latvian authorities
the Commission in
advance of the adoption of any such additional measures.

shall consult

(d) continuing measures started in 2008 to reduce employment
in central government ensuring at least a 5 % reduction by
the end of 2008 and total reduction of 10 % by 30 June
2009;

Article 3

The Community financial

1.
shall be made
available by the Commission to Latvia in a maximum of six
instalments,
the size of which will be laid down in the
Memorandum of Understanding.

assistance

The first instalment shall be released subject to the entry
the Loan Agreement and Memorandum of

2.
into force of
Understanding.

If required in order to finance the loan, the prudent use of
3.
interest rate swaps with counterparties of highest credit quality
shall be permitted.

The Commission shall decide on the release of further

4.
instalments after having obtained the opinion of the EFC.

The disbursement of each further instalment shall be made
5.
the new
on the basis of a satisfactory implementation of
economic programme (Economic Stabilisation and Growth
included in
Revival Programme) of the Latvian Government,
the convergence programme, and, more particularly, of
the
specific
laid down in the
Memorandum of Understanding. These shall include, inter alia:

economic policy

conditions

(e) strengthening the design and implementation of budgetary
procedures by the adoption of a fiscal
framework and
budgetary reform through an amendment to the current
Budget and Financial Management law;

(f)

introduction of a clear and transparent wage payment
system for direct public administration employees and
establishment of a single human resource planning and
management system for public administration institutions;

(g) mechanisms to ensure wider banking sector stability in the
medium to longer term, including a wide range of super­
visory, prudential and monetary policy measures. These
should limit credit growth to sustainable levels and avoid
heavy reliance on unsecured foreign funding. Targeted
examinations shall be conducted in the banking system to
ensure that all banks are solvent and sufficiently capitalised;

(h) appropriate measures regarding private sector debt restruc­
turing. The appropriate legal basis for maturity and currency
restructuring of existing debt shall be strengthened. Facili­
tating insolvency procedures and quick implementation of
rehabilitation plans shall also be made a priority;

(i) ensuring that the remaining minority shareholders of Parex
Bank do not benefit from the resolution of the bank and
measures to enhance financial stability, by means of fully
nationalising Parex Bank;

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Official Journal of the European Union

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(j)

structural reform measures supported in the context of the
Lisbon strategy and implemented in Latvia’s National
Reform Programme,
including active labour market and
lifelong learning policies, greater involvement of private
sector actors in R & D and innovation activities, export
promotion measures
administrative
burdens for businesses;

removal

and

of

Article 4

This Decision is addressed to the Republic of Latvia.

Article 5

This Decision shall be published in the Official Journal of the
European Union.

(k)

implementation of EU-funded projects at the planned level
to help improve the contribution of the tradeable sector to
economic growth;

Done at Brussels, 20 January 2009.

(l) measures to improve access to financing for companies and
entrepreneurs, whose applications for Structural Funds have
been approved, or who may be planning to apply for
Structural Funds.

For the Council
The President

M. KALOUSEK