- Title: LATVIA: Latvia MPs backs crisis plan after marathon session
- Date: 15th December 2008
- Summary: NEWSPAPER HEADLINE READING: "BAD PLAN. SELF-EXHAUSTED GOVERNMENT" NEWSPAPER SEEN THROUGH NEWSSTAND WINDOW NEWSPAPER HEADLINE READING: "GOVERNMENT CLOSER TO SIGNING THE AGREEMENT"
- Embargoed: 30th December 2008 12:00
- Keywords:
- Location: Latvia
- Country: Latvia
- Topics: Finance,Domestic Politics
- Reuters ID: LVA3Q9RCBK1ZT37XX0OSWQE0Q376
- Story Text: Latvia's parliament backs an austerity package after a 20-hour session that ended early Friday morning.
Latvia's parliament backed an austerity package on Friday (December 12) after a marathon session of 20 hours as the country eyes billions of euros of help from the International Monetary Fund and the European Union.
Reaction to the harshest package since Latvia quit the former Soviet Union in 1991 was a mix of anger and resignation. The country, an EU and NATO member since 2004, needs aid as it has plunged into recession and it had to rescue a leading bank.
Amendments to the 2009 budget foreseeing a deficit of 4.9 percent of GDP, a rise in value added tax rates and excise duties and a cut in income taxes, all passed before the session that started on Thursday (December 11) morning ended on early Friday.
Riga resident Inga Prodniece said the value added tax raise troubled her the most.
"I think this is an inconsiderate move because the consequences are not taken into account. Many people will lose their jobs," she said.
"Presumably the state should be saved, but they do it on the expense of us, poor people, not on the expense of the rich ones. That is a pity," said another resident, Eleonora Visocka.
The government has given no figure for how much Latvia wants to borrow from the IMF and the EU, but has said it needs to cover the budget deficit, have a reserve fund to back up the ailing banking system and to stimulate credit for businesses.
Finance Minister Atis Slakteris has said his experts estimated the amount needed at 5 billion euros.
Sweden, whose banks are heavily invested in Latvia, is also leading an effort for aid from other countries, particularly the Nordic states. However, fellow Balt Estonia is also to help.
The package aims to cut spending, including a 15 percent drop in state salaries, and raise VAT to 21 percent from 18.
The discounted rate of VAT will rise to 10 percent from 5 percent.
Excise duties will also rise. Newspapers, fearing a sharp fall in sales, will have the lower rate of VAT for a year.
The government has been criticised for rushing through a drastic package, especially after economists had told it for at least two years its budget policies were fuelling overheating.
Latvian daily Diena also reported on big salaries given to political appointees in state-owned firms, part of criticism of surging government salaries and costs in recent years.
"We have one of the most expensive state apparatuses in the EU, we have the most expensive education, health and internal affairs system,"
said a commentary in the Latvijas Avize daily.
Another daily, Neatkariga Riga Avize, accused Swedish banks of creating a bubble, meaning Sweden itself was effectively dictating policy in Latvia as the price for helping in a rescue.
"The Latvian parliament accepted the plan and, raising the white flag, conceded that a Swedish fiscal dictatorship has been introduced in Latvia," an editorial said. - Copyright Holder: REUTERS
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