International Monetary Fund Managing Director Dominique Strauss-Kahn Saturday detailed a stabilization package agreed between the international crisis lender and the Latvian government, according to dpa. In a statement issued from IMF headquarters in Washington, Strauss- Kahn said the package, agreed Friday, would still require fast-track approval from IMF management and the agency's executive board. The total multinational stabilization package is 7.5 billion euros (10.5 billion dollars), he said. It includes a 27-month stand-by arrangement for about 1.7 billion euros from the IMF. As part of the package, Latvian authorities are implementing a strong package of policy measures aimed at stabilizing the economy, Strauss-Kahn said. Other participants include the European Union with a loan of 3.1 billion euros, the Nordic countries with a combined 1.8 billion euros, the Washington-based World Bank with 400 million euros, the Czech Republic with 200 million euros, the European Bank for Reconstruction and Development with 100 million euros and contributions of 100 million euros each from Estonia and Poland. The European Union's contribution is also subject to approval by the finance ministers of the 27 EU member states, with a vote likely in mid-January. The contribution from neighbouring Estonia may be small but has deep significance. Earlier this week Latvian Prime Minister Ivars Godmanis refused an offer of help from Estonia. The World Bank welcomed the agreement. "This is a fragile period," said the organization's Shigeo Katsu, "so we must do everything we can to prevent the financial crisis from becoming a human crisis." "Our proposed support would focus on the financial system and social sectors - including health and education - as well as public sector reform," said Orsalia Kalantzopoulos, the World Bank's director for Central Europe and the Baltics. The representative office of the European Commission in the Latvian capital, Riga, called on the private sector to reinforce the aid being provided by international institutions. "We also call on major financial institutions operating in Latvia to continue adequate financing of their activities and the national economy. We appreciate very much that foreign banks have affirmed their long-term trust in Latvia and support to their branches in Latvia," said a press statement. On Saturday, economists in Latvia and elsewhere said they were surprised by the size of the package. "It is much larger than anyone expected, equivalent to around half of Latvia's external financing requirement," Neil Shearing of London- based Capital Economics told Deutsche Presse-Agentur dpa. "While the massive size of the package should prevent widespread defaults by Latvian firms and banks, the conditions attached will deepen the recession next year. There's a good chance that GDP could contract by 10 per cent," Shearing predicted. He also said the fact that the currency peg against the euro is being retained was of "massive significance." A spokesman for Latvian Prime Minister Ivars Godmanis said he hoped Latvia would not have to use all of the 7.5 billion euros that will be made available.
