World Bank approves loan to Latvia

(RIGA) - Latvia signed an agreement with the World Bank Friday to borrow 100 million euros (143.9 million dollars) to support reforms to the social safety net, the bank said in a statement.

The loan is the first of two instalments to shore up social services in the Baltic nation of 2.2 million people, where unemployment -- 22.9 percent of the workforce in December -- is the highest in the EU.

The funds are part of a 7.5-billion-euro bailout package approved in December 2008 and financed in part by the European Union and the International Monetary Fund.

The World Bank is contributing 400 million euros to the package to support the banking sector and protect the poor and unemployed. The World Bank board approved half of its contribution in September 2009.

The loan "will ensure that local governments have the resources they need to keep providing basic social services," said the statement.

Latvia is now locked in one of the deepest recessions in the 27-nation EU. Its economy contracted 18 percent in 2009.

It had enjoyed the reputation of an economic success story by posting double-digit growth after it entered the European Union in 2004.

But its economy went into freefall as the boom -- which had been stoked by easy credit and rising wages -- went off the rails from 2007 and the global crisis added a further blow.

While the country has been bailed out by international lenders, the government has been slashing social security and other public spending in an effort to curb its deficit.