European Union nations on Tuesday approved a euro3.1 billion ($4.09 billion) loan to Latvia to help it survive the financial crisis.
Investors took fright over the health of the Baltic nation's economy late last year, forcing the central bank to use up foreign currency reserves to prevent its currency from plunging in value. The government was also forced to nationalize the country's second-largest bank, Parex, in November when it ran out of cash. EU finance ministers said the loan was conditional on Latvia moving to stabilize its banking sector, stem liquidity problems and reduce its foreign debt.
The EU's three-year loan is part of a euro7.5 billion package from the EU, the International Monetary Fund, the World Bank, the European Bank for Reconstruction and Development and several European nations: the Czech Republic, Denmark, Estonia, Norway, Poland, Sweden and Finland.
Once one of the fastest growing economies in the European Union, Latvia is expected to have contracted by 2.3 percent last year and could shrink another 6.9 percent this year, the European Commission says.
Government spending swung from surplus into deficit last year, hurtling over the EU's 3 percent limit at 3.5 percent of gross domestic product in 2008 and heading deeper into debt with 6.3 percent this year. The Commission has asked Riga to cut to this under 3 percent by 2011.