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Latvia and the International Monetary Fund
Latvia has been a member of the International Monetary Fund as of May 19, 1992. The legal basis for the cooperation is laid down in the law "On the Republic of Latvia's Accession to the International Monetary Fund" of April 15, 1992 that sets out the conditions for Latvia's joining the IMF and Latvia's commitments in respect of the IMF Articles of Agreement. According to this law, the Bank of Latvia is designated a depository of the IMF holdings of the Latvian currency.
Originally Latvia's quota in the IMF was 91.5 million SDR, but at the end of 1999, it was increased to 126.8 million SDR that represented 0.06% of the IMF financial resources.
In September 1992, the IMF ratified the financial and economic development programme for 1992 and the first half of 1993 that had been developed jointly by the Latvian government and the Bank of Latvia. On the basis of these guidelines Latvia received a loan of 54.9 million SDR from the IMF. In December 1993, the IMF approved the second economic development programme for the next 15 months and a loan of 22.9 million SDR. At the same time the IMF approved a loan of 45.8 million SDR for economic re-structuring (Systemic Transformation Facility, STF).
During the period from of 1992 to 2002, Latvia and the IMF have signed seven stand-by arrangements. In 1995, they were replaced by precautionary stand-by arrangements meaning that Latvia had not used all funds made available to it by the IMF. Over the years of cooperation, Latvia has maintained good relations with the IMF and ensured compliance with the signed memoranda.
According to the Cabinet of Ministers Order "On the Representation of the Republic of Latvia's Interests in the International Monetary Fund" of December 6, 1994, the Minister of Finance became Governor of the International Monetary Fund for the Republic of Latvia and the Governor of the Bank of Latvia was Alternate Governor. This arrangement was effective until March 18, 2003 when the Cabinet of Ministers issued a decision on transferring the functions of the Governor of the IMF to the Governor of the Bank of Latvia, and the State Secretary of the Ministry of Finance was appointed Alternate Governor.
As a result of the decision, the Bank of Latvia is now the coordinating institution for the IMF affairs in Latvia and performs the following functions:
- ensures daily cooperation with the coordinating country of the Nordic-Baltic Constituency and other countries within the Constituency as well as the Nordic-Baltic Office in Washington;
- prepares the official opinion of the Latvian authorities on issues that relate to the country's interests and on issues where Latvia has accumulated experience.
In 2001, the Financial Sector Assessment Program, a joint effort by the IMF and the World Bank, was carried out in Latvia whereby the operating risk of banks and other financial institutions was assessed along with the compliance of the Bank of Latvia's practice with international standards.
Cooperation
1) Within the framework of the economic policy programme, the IMF cooperates with the Latvian Government on macroeconomic issues, namely, fiscal, monetary, exchange rate and trade policies aimed at fostering economic growth, lowering inflation and attaining favourable balance of payments position. Economic policy guidelines are included in the Economic Policy Memorandum that is signed by the Latvian government and the Bank of Latvia. The usual practice is that during the operation of a memorandum, IMF missions visit a country twice a year to review the compliance with the criteria set out in the memorandum.
2) The IMF provides technical assistance to Latvia in several areas, namely, expenditure policy and management, tax and customs management and policy, banking supervision, monetary policy, central banking, balance of payments and statistics. IMF expert groups work in Latvia to provide technical assistance. According to the IMF Articles of Agreement, technical assistance is aimed at promoting the establishment of the productive resources of member countries by enhancing efficiency of their economic and financial policies. In practice, assistance is provided to strengthen public institutions and develop economic policy. The IMF also helps its members to strengthen human resources and institutional capacity and consults them on a successful implementation of efficient macroeconomic policy and structural reforms.
3) The IMF provides opportunity to study at the IMF Institute in Washington and the Joint Vienna Institute. Since 1992, more than 230 officials from public institutions and the Bank of Latvia have participated in various training courses.
4) Latvia takes part in the decision-making process (e.g. on new countries acceding to the Fund) when the Governor of the Republic of Latvia in the IMF participates in the voting pursuant to the established procedure. Latvia takes part in the IMF annual meetings where the IMF development strategy is adopted, and spring and autumn meetings of the International Monetary Financial Committee (IMFC) where topical issues of the Fund's activities are discussed.
5) In accordance with Article IV of the IMF Articles of Agreement, the IMF holds bilateral negotiations with Latvia. The IMF negotiates with its members once a year when IMF experts come to a country to analyse its economic and financial sectors and have meetings with officials to discuss the country's economic policy. Upon return, the Fund's staff prepares a review on a country's development that is discussed at the Executive Board. Upon the conclusion of discussions, the Director General, who is also chairman of the Executive Board, makes a summary paper on conclusions that is forwarded to the country's administration.
