IMF chief Christine Lagarde has hailed Latvia's austerity drive as model for debt-mired euro zone states like Greece balking at belt-tightening to avert economic meltdown.
"Latvia decided to bite the bullet and instead of spreading the pain over a number of years, you decided to go hard and to go quickly," Lagarde said.
She was speaking to delegates to an International Monetary Fund conference in the Latvian capital Riga on lessons from its spectacular recovery for euro zone strugglers.
"The achievement was incredibly impressive: in the first year of the programme Latvia implemented fiscal adjustment - in one year alone - of 8% of GDP," she noted of Riga's biting austerity drive. This was part of a 2008-2009 €7.5 billion IMF-EU bailout.
As the global economic crisis bit in 2009, Latvia's economy shrank by 18% compared to the previous year - and by a cumulative 25% from the start of the crisis in 2008 - the deepest plunge recorded worldwide.
"For Greece it is important that the politicians accept the reform programme, and own it. In Latvia, there was broad support for the reforms. That is necessary for it to work," the IMF chief told the Swedish daily Svenska Dagbladet in an interview published today.
"It's important for other crisis-ridden countries to learn from Latvia. The programme there was a success," she added.
Latvia credits the bail-out and austerity drive with putting it back on a path to growth. While in 2010 output shrank by 0.3%, it rebounded to a 5.5% expansion in 2011. The IMF currently predicts GDP growth for 2012 at 3.5%.
All three ex-Soviet Baltic states in the EU's northeastern corner are touting austerity as the cure to deep recessions sparked by the last global crisis.
Lagarde praised Latvia's "impressive collective determination" in implementing the biting austerity measures, admitting "there was some unrest and there was some protest but extremely limited compared to the hardship."
The IMF chief also urged Latvia to stick to its goal of adopting the euro in 2014, while signalling that major changes were needed in the way the crisis-struck single currency operates.
"The monetary union, which by 2014 I hope will have expanded beyond a strict monetary currency to become much more of a fiscal and financial union as well as being a monetary union," Lagarde said of the debt-mired euro zone.
Latvia, an EU member since 2004, is not yet a member of the euro zone but it hopes to qualify for membership at the end of this year and introduce the euro as its currency from January 2014.
