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For richer, now poorer

Latvians feel quality of life gains slip from their fingers as bailout fails to revive economy.

A woman walks past a shop with an ongoing sale in Riga Feb. 17, 2009. (Ints Kalnins/Reuters)

SEJA, Latvia —For Latvians, the party is officially over. The life they had gotten a taste of — that of life in western Europe, with new cars, nice restaurants, and boutique shopping — is in jeopardy.

This ex-Soviet Baltic state faces bankruptcy by June if it does not cut more money from its national budget and reach another deal with international lenders, prime minister designate Valdis Dombrovskis warned this week.

But Latvia has already slashed its budget to the bone. As part of a 7.5 billion euro ($9.5 billion) International Monetary Fund-led bailout package agreed on late last year, the country adopted an extreme austerity program. The government’s budget must be kept within 5 percent of gross domestic product (GDP). Public sector salaries have been cut by 15 percent, and then another 10 percent. Government ministries have seen their outlays drastically reduced. Even a traditional Victory Day celebration with neighboring Estonia has been cancelled for lack of funds.

Now Dombrovskis says that even this will not be enough. He was named to lead a four-party center right coalition after the previous prime minister, Ivars Godmanis, resigned on February 20, in part over public outrage to the austerity measures. Dombrovskis and the new coalition have been left little choice but to follow the same path however.

Revenues have been lower than anticipated, while spending has been higher. The deficit ceiling should be raised to 7 percent of GDP, the prime minister said, while the next tranche of the bailout cannot be delayed. Even so the government will have to slash some 280 million lats, or $506 million, from the budget.

“We need an agreement with the IMF and with the European Commission,” Dombrovskis said on national radio, as quoted by Reuters.

“The social impact [of the cuts] will of course be very unpleasant — but even more unpleasant would be not getting any more international financing, and the treasury runs out of money in June,” he cautioned.

What all this means for the country’s 2.26 million inhabitants, and towns like Seja, a sleepy farming community of some 2,500 inhabitants and 40 kilometers from the capital Riga, is anybody’s guess, however.