Latvia, EU ink release of EUR 500 million bailout tranche

(RIGA) - Latvia and the European Union have signed a document unlocking a 500-million-euro (679.7-million-dollar) tranche of cash to finance the crisis-hit Baltic nation's budget deficit, an EU spokesman in Riga told AFP Tuesday.

"I can confirm that the memorandum of understanding was signed late last night," said Ivars Busmanis, the spokesman for the European Union's executive arm.

Last week, the head of the EU Commission in Riga Iveta Sulca said the money will be transferred to Latvia in mid-March.

It comes from a 3.1-billion-euro credit line funded by the EU and is part of the 7.5-billion-euro bailout Latvia secured in December 2008, arranged by the EU, the International Monetary Fund, Nordic countries, Poland, Czech Republic, and Estonia.

With this tranche, the EU has so far contributed 2.7 billion euros to Latvia's rescue.

Under terms of the bailout package, Latvia repeatedly slashed public spending and raised taxes to try to plug a gaping hole in state coffers.

The IMF said February 17 it would provide a loan installment of 200.3 million euros (274.9 million dollars) to Latvia as part of its contribution to the overall bailout.

The nation of 2.2 million people, which saw its economy shrink by an estimated 18.4 percent in 2009 from the previous year, is suffering the deepest economic crisis in the 27-member EU, which it joined in 2004.

Its economy had flourished immediately after accession, driven by rising wages, credit, and a real estate boom.

But overheating drove it off the rails in 2008, as government credit controls to dampen rampant inflation began to bite, the property bubble burst, and the global crisis battered export markets in the rest of the EU and Russia. One out five Latvians is currently unemployed.