Yesterday, the European Commission (EC) issued the first €1.0 billion installment of its €3.1 billion medium-term loan to Latvia pursuant to the terms of a Memorandum of Understanding between Latvia and the European Community, which includes economic policy conditions in the areas of “fiscal consolidation, fiscal governance reform, financial sector regulation and supervision and structural reforms.”. The EU’s financial assistance is part of a larger financial package totaling approximately €7.5 billion with support provided mainly by the IMF, the Nordic countries, World Bank and the European Central Bank.

The EC noted that the aid provided to Latvia is “conditional on the implementation of a comprehensive economic policy programme.” Further, “[t]he financial assistance and the policy programme are designed to enable the economy to withstand short-term liquidity pressures while improving competitiveness and supporting an orderly correction of imbalances in the medium term, hence bringing the economy back on sound and sustainable footing.” Earlier this month, Latvia’s Cabinet of Ministers approved its 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.

Last Friday, Latvia’s Prime Minister Ivars Godmanis announced his resignation amidst the country’s economic financial crisis after the two largest coalition parties threatened to withdraw from the government’s four-party coalition.