Friday, March 13, 2009

Correcting Cristoph Rosenberg

IMF's response to an article in The Economist:

"Latvia's International Monetary Fund (IMF) supported program does not entail large cuts to social spending," Christoph Rosenberg, mission chief for the IMF in Latvia, said in a letter to The Economist.

Although it is true that the fiscal consolidation planned by the Latvian government is indeed large, at around 7% of GDP, social spending, as well as capital spending co-financed by the European Union, is explicitly protected," the IMF representative said in the letter.

What Rosenberg says is half-true, half-false.

True part: social spending was indeed protected from cuts in the December 2008 version of the budget.

False part: the agreement between Latvia and IMF requests that Latvia keeps to 5% of GDP deficit even if the Latvian economy deteriorates further. The revenues of the Latvian budget have been falling rapidly and this means that our government may have to cut 700 mln lats (4-5% of GDP) more from the budget. The unofficial gossip is that there is a 20% cut in social security benefits coming, unless Latvia manages to convince IMF and EU to fund a bigger budget deficit.


Anonymous said...

For teachers 20% off their salaries is a reality already. Also the vacation for them will start half a month later to pay them as less as possible during vacation (calculation takes into consideration only last 6 months and by postponing vacation for 2 weeks, they plan to exclude "big" December salaries).

Latvian abroad said...

So, Godmanis lied in his New Year speech when he said that teachers' salaries would not be cut? Ouch.