Last Friday, Latvia’s Prime Minister Ivars Godmanis announced his resignation amidst the country’s economic financial crisis. The country’s largest coalition parties, the People’s Party and the Union of Greens and Farmers threatened to withdraw from the government’s four-party coalition unless the Prime Minister submitted his resignation. Leading up to Godmanis’ resignation it was reported in January, that there were mass protests that resulted in riots and street blockades in Riga due to an apparent lack of accountability by the country’s politicians. Godmanis, who took office at the end of 2007, has been the focus of widespread criticism for his support of the government’s $1.68 billion aid request from the IMF under the terms of a 27-month Stand-By Arrangement, which was later supplemented by additional financing from the European Union (€3.1 billion), the World Bank (€400 million), the European Bank of Reconstruction and Development and other Nordic countries for a total package of €7.5 billion. Notwithstanding the aid package, continued economic woes have triggered public demonstrations protesting the government and its response to the financial crisis.

Earlier this month the Cabinet of Ministers approved Latvia’s Economic Stabalisation and Growth Revival Programme Action Plan and several key amendments, proposed by the Ministry of Finance and designed to restructure the present framework of the country’s banking regulations. Minister of Finance Atis Skalteris stated that the adoption of the Programme “will reduce influence of risks slowing down the development, as well as stabilise Latvia’s national economy to achieve sustainable growth of gross domestic product and balanced state budget.” The programme’s framework prescribes measures in the following areas: “monetary, fiscal and financial policy, as well as promotion of economic competitiveness.” The Latvian government has appointed the Ministry of Finance to be responsible for administering the Programme.

The Cabinet of Ministers also approved amendments to Latvia’s Credit Institution Law, Deposit Guarantee Law and Law on the Financial and Capital Market Commission. The amendments still remain subject to Parliamentary approval and in part propose specifically the following:

  • A “new procedure for imposing restrictions on credit institutions” to be administered by the Financial Capital Markets Commission (FCMC). The procedure seeks “to avoid excessive outflow of investments or other attracted resources, threats to credit institutions or their insolvency, as well as threats to security or stability of Latvia’s credit institution sector which could cause serious losses to Latvia’s national economy.”
  • New measures “for gathering information about depositors whom guaranteed compensations have to be paid.”
  • Permit only the Council of the FCMC to restrict the rights of financial and capital market members.
  • Increase the “term for revision of credit institutions’ insolvency and liquidation cases” from 15 to 5 days.
  • A new procedure “by which the Minister of Finance issues guarantees to bank loans on behalf of the State to decrease overall economic risks, avoid social economic crisis or reduce its impact and ensure accessibility to resources in emergency situations.”

It has also been reported that the Serbian government is presently seeking an increase of approximately $2 billion to its $530 million 15-month Stand-By Arrangement with the IMF. Recent news reports also indicate that the Romanian government is also considering requesting financial support from the IMF.