OREANDA-NEWS. August 19, 2010. World Bank Group President Robert B. Zoellick arrived in Latvia, on the third leg of a European visit to emerging markets in Europe to assess the impact of the global and economic crisis and discuss ways the World Bank can offer support, reported the press-centre of World Bank.
 
“The Government of Latvia has done a remarkable job in implementing tough but important reforms under difficult circumstances.  It not only achieved its fiscal consolidation target, but it did so while protecting the most vulnerable groups through the Emergency Social Safety Net program,” said World Bank Group President Robert B. Zoellick.  “Today, I saw firsthand how this program is helping Latvians who lost their jobs during the crisis to continue working so they can provide for their families.  2009 was a difficult year for the people of Latvia, and I am deeply moved by their determination to work hard to overcome this crisis.”

Upon arrival, President Zoellick held talks with Latvia’s President Valdis Zatlers on the latest economic developments in the country and globally.  Today, with EU Commissioner for Development Andris Piebalgs, President Zoellick visited the Municipality of Sigulda and spoke to beneficiaries of the Workplace with Stipend Program supported by the EC’s European Social Fund and the World Bank’s Safety Net and Social Sector Reform Development Policy Loan (SDPL).  They also met with State Employment and Social Insurance Agencies and discussed the challenges of sustaining social services during the economic downturn.  The visit to Sigulda concluded with a meeting with Prime Minister Valdis Dombrovskis, which touched upon Latvia’s partnership with the Bank and the European Commission.
 
President Zoellick is scheduled to meet Minister of Finance Einars Repse in Riga later today, as well as with representatives from Latvia’s private sector.

The global recession hit Latvia harder than any other country in Europe.  Latvia’s economy contracted by 18 percent last year and unemployment soared from 7 percent in 2008 to 17 percent in 2009. To stabilize its economy, the Government of Latvia sought external financial support in 2008 in the form of a EUR 7.5 billion stabilization program supported by the European Commission, the International Monetary Fund (IMF), European Bank for Reconstruction and Development (EBRD), Nordic and Central European Countries, and the World Bank.

“Although Latvia graduated from World Bank lending in 2007, we are providing financial support, at the Government’s request, on an exceptional basis to help the country weather the economic and financial storm,” said Zoellick.  “Over time, Latvia, like many other countries, will need to embrace long-term structural reforms to put the economy on the path to sustainable recovery, and the World Bank stands ready to assist with these efforts.”
 
The World Bank committed EUR 400 million to the international rescue effort focusing on the financial and social sectors.  This includes, the Financial Sector Development Policy Loan (DPL) (EUR 200 million) disbursed in November 2009 which supported a comprehensive financial sector reform program.  This covered short-term crisis management measures to strengthen the banking sector’s solvency and liquidity and facilitate renegotiations of corporate and mortgage debts to avoid closure of viable firms and foreclosure of residential properties.  The DPL also supported long-term structural reforms by strengthening banking sector regulations, including asset quality and capital adequacy regulation and improving prudential supervision.
 
The first of two (EUR 100 million) Safety Net and Social Sector Reform Development Policy Loans (SDPL) was approved in March 2010, and is aimed at addressing the social impact of fiscal consolidation by supporting the government’s Emergency Social Safety Net (ESSN) Strategy in the short-term, and supporting social sector reforms in the medium-term.  The second EUR100 million Safety Net and Social Sector Reform loan is expected to be delivered in early 2011.  The ESSN Strategy finances and coordinates the efforts of national and local government agencies to:
 
maintain pre-primary education and child development programs for 5- and 6-year olds;
cover costs of transporting students from communities where schools have closed to their new schools;
exempt needy households from health service co-payments and pharmaceutical costs;
 improve family doctor and primary health care services;
increase coverage and pay-out period of unemployment insurance; and
increase the coverage and amount of targeted social assistance transfers and services for the poorest eligible families.

In addition to the EUR 300 million in International Bank for Reconstruction and Development (IBRD) funds disbursed in since 2009 as part of the stabilization program, Latvia has approximately EUR 114 million in political risk insurance coverage from the Multilateral Investment Guarantee Agency (MIGA).  The Agency is currently insuring four projects in Latvia, all in the financial sector. Two projects make up the vast majority of MIGA’s exposure in the country – a combined gross exposure of approx. EUR 111 million and involve shareholder loans from Unicredit Bank Austria to two different subsidiary operations in Latvia: AS Unicredit bank (ASUB) and SIA Unicredit Leasing.  The remaining approx.EUR 3 million of MIGA exposure in Latvia is made up of two guarantees supporting the first issue of a mortgage-backed securitization program involving US based Baltic American Mortgage Holdings, LLC and Baltic-American Mortgage Trust 2004-1, for their investments in the Baltic American Mortgage Company in Latvia.
 
Latvia joined the World Bank in 1992, and the Bank has played an active role since in supporting Latvia’s transition through lending, policy dialogue, and analytical and advisory assistance.  In the years following graduation from the Bank, Latvia made full use of the limited free technical assistance available to graduates.  During this period, the Bank provided support to help promote development in lagging rural regions, manage public finances strategically through medium-term budgeting, and develop a public-private partnership framework.  The Bank also supported the Ministry of Environment’s efforts to implement a pilot greening program financed by revenues from international emissions trading.