The World Bank’s Board of Executive Directors today approved the First Safety Net and Social Sector Reform Special Development Policy Loan for Latvia in the amount of Euro 100 million (US$ 143,9 million equivalent) to ensure that local governments have the resources they need to keep providing basic social services.

The World Bank’s Board of Executive Directors today approved the First Safety Net and Social Sector Reform Special Development Policy Loan for Latvia in the amount of Euro 100 million (US$ 143,9 million equivalent) to ensure that local governments have the resources they need to keep providing basic social services. This loan is part of the international financial support program led by the International Monetary Fund and the EU aimed at mitigating the impact of the global financial crisis and rapid economic contraction.

The main objectives of the loan are:

• to protect vulnerable groups with emergency safety net support during the economic contraction
• to mitigate the social costs of fiscal consolidation, and
• to support important structural reforms in social sector programs.

“The Latvian government has implemented a significant decrease of the budget deficit and at the same time established a social security network that is planned for supporting socially vulnerable groups in society. The loan approved today will help us to achieve these goals – fiscal stability and social security. I am grateful for the support that The World Bank has provided us in establishment of a social safety net,” says Einars Repše, the Latvian Minister of Finance.

The proposed program of World Bank support will focus on measures designed to respond to household needs in the wake of Latvia’s severe economic contraction and to mitigate the social impact of fiscal consolidation by supporting implementation of the Government’s cross sector Emergency Social Safety Net Strategy. As necessary but difficult structural reforms are implemented, the Government is committed to alleviating the social costs of the transition to new financing and service delivery models in the education and health sectors, in order to ensure an adequate level of service provision is maintained across the country.

As part of this program, the World Bank will also start technical cooperation with the authorities to ensure close monitoring of how the emergency safety net measures are implemented and continued timely response to household needs. It will also review medium-term social sector issues.

“The main goal of the loan approved today is to provide financial assistance to the national government and to local governments so they can keep essential emergency programs running in the difficult times of the crisis,” said Peter Harrold, World Bank Director for Central Europe and the Baltic Countries. “In 2008 and 2009, we saw how the crisis hit the most vulnerable groups, so with this loan the World Bank will try to ensure that local governments have the resources they need to keep providing basic social services. This includes keeping pre-schools open, ensuring transportation to schools for students that need it, providing free medical care and medication for families with very low incomes, and paying social assistance benefits for the poorest people.”

This loan is the first of a proposed program of two loans focused on Safety Net Support and social sector reform. The program is part of the Special Development Policy Lending (SDPL) and technical assistance from the World Bank to the Republic of Latvia which is being delivered through two parallel vehicles:

- one supporting reforms to strengthen the financial sector (the Financial Sector Development Policy loan of EUR 200 million was approved by the World Bank’s Board of Directors on September, 22, 2009).

- and the other that this loan is a part of, providing support for an emergency safety net and social sector reform

“The Republic of Latvia is committed to managing a very painful but necessary fiscal adjustment in a responsible way that ensures critical services are provided to people in need,” said Truman Packard, World Bank Lead Economist in the Europe and Central Asia Region. “The government has made available a whole range of emergency assistance programs for households affected by the economic crisis. The first step that people need to take to get the assistance is to check with their local authority (local municipality) and find out whether they and their families are eligible for these programs. The main objective of the loan is to support local governments, who are closest to the people who have suffered the most as a result of the economic crisis.”