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IMF’s Lagarde Says Latvia Exceeded Expectations Under Program

June 05, 2012

International Monetary Fund Managing Director Christine Lagarde comments on the European debt crisis and on Latvia’s economic performance. Lagarde made the remarks to a panel of journalists today in the Latvian capital, Riga.

On whether the Greek IMF program should be renegotiated:

“It has to be one step at a time. The election campaign is going on, there will be elections on the June 17th. There will be representatives duly elected by democratic process and we will pursue discussions with that newly formed set of representatives after June 17th. So I don’t want to prejudge. I don’t want to rule out.

‘‘We always sit at the table of discussions, we never leave the table, but really one of the IMF’s first jobs will be to review the complete implementation of the program because our review is actually overdue, it should be taking place now, but because of the postponed or rather the renewed election on June 17th, we are conducting the review a bit later on. So that’s step number two for us. Election, we begin the review process and we always sit at the table.”

On what Europe should do to stop losing competitiveness:

“Regain it. And certainly within the eurozone, improve competitiveness, improve the efficiency of the economies. There are reforms underway in many members of the eurozone. I think of Italy, for instance, I think of Spain, clearly, that are doing those jobs, in addition to countries under program which are conducting structural reforms to improve efficiency of their economies and that is necessary.”

On whether bailout countries are more successful in reforms:

“Generally, one is pressed to do the hard things by necessity and clearly the crisis or the pressure from the external factor is a good incentive to conduct those reforms. But this is happening and it needs to continue.”

On whether Latvia’s value-added tax cut was right to fight inflation to join the euro:

“Joining the eurozone was clearly part of the program because it was the exit strategy for the program and an important yardstick. In accomplishing what they have accomplished, they are clearly demonstrating that Latvia is capable of reaching goals, of taking hard decisions, of implementing the decisions, and of reaching targets.

‘‘So that’s a very-very strong, not only economic but also political demonstration of the country’s strengths, inner strength, cultural strength, which in our view is critical and was in a way, slightly unexpected to begin with. If we look 3 years ago, had we expected such performance? The answer is probably ‘no’.

‘‘So Latvia has exceeded expectations in multiple ways, the way in which it frontloaded the program, in the way it sort of, went overboard. So that particular strength should be taken into account.

‘‘How it meets all the particular criteria, is clearly for the authorities to take their best judgment. We’re not here to say one percentage point or one decimal of a percentage point here or there, it will be determined by the euro partners but the inner strength of the economy, the way in which it has traveled through the program, it is a very strong indication of its ability to perform and that’s really important.’’

On Spain:

‘‘I have not received a request for any kind of program. I have not had any solicitation on the part of Spain and yet I’ve had discussions including with the Vice Prime Minister of Spain a few days ago in Washington and we certainly did not raise that issue.’’

On France favoring bigger stimulus:

‘‘We at the IMF take a balanced view. We’re saying that what the economies need at the moment is a combination of stabilization measures and that includes obviously fiscal consolidation, and growth-friendly measures as well, not necessarily by way of stimulus.

‘‘There are multiple ways to growth. One can certainly be monetary policy, another one can be through structural reforms that deliver growth potential and improve the capacity of the economy. So it’s a balanced approach, and one goes with the other and vice versa, they are not mutually exclusive. That’s point number one.

‘‘Point number two: there’s no one-size-fits-all principle. We believe that each and every economy has its characteristics, specificities, and will require a tailor-made approach to this goal of growth, and I would add to that, inclusive and sustainable growth, which we believe is important. So it’s a combination of both. You cannot just say ‘we need to stimulate the economy.’ It’s not as simple as that.”

On job creation in Latvia and the rest of Europe:

“Jobs are preconditioned on growth. And in that regard, I think that the Latvian performance is quite strong.

Five percent in 2011, 3.5 percent probably in 2012 is a significant performance. Number two, clearly it is necessary to focus on productivity and it is also important in our view to tailor two things: one is the skill-set of the population with the jobs available on the market, and second, to tailor the capacity to produce and export with sectors of export that are likely to grow in the future.

‘‘It’s improving gradually, and it will continue to be gradual. You cannot move from 20 percent unemployment to 7 percent unemployment overnight, it’s a gradual process, but there is progress already, given it has moved from 22 to 16 percent. The trend is good, it’s directionally correct and it has to continue in that direction.”

To contact the reporter on this story: Aaron Eglitis in Riga at

To contact the editor responsible for this story: Balazs Penz at

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