EU – Baltic States, Financial Services, Latvia

"Although it is true that the fiscal consolidation planned by the Latvian government is indeed large, at around 7% of GDP, social spending, as well as capital spending co-financed by the European Union, is explicitly protected," the IMF representative said in the letter.

"In fact, according to data provided to the IMF, spending on social support programs is planned to increase between 2008 and 2009 in absolute terms, as a%age of GDP, and as a share of total outlays," Rosenberg said.

Rosenberg went on to say that pensions will not be changed this year and will be indexed to inflation next year, at the same time as public-sector employees are set to see substantial reductions in their nominal salaries, informs LETA.

"Under the program, the Latvian authorities will also improve the targeting of spending to develop social safety nets. This is consistent with the objective of increasing competitiveness under Latvia's fixed exchange-rate regime, while also protecting those who are most vulnerable," Rosenberg added in the letter to The Economist.

As reported, yesterday, Saeima passed amendments to the law "On State Pensions", which envisage not indexing pensions in year 2009.

The amendments also foresee that further on the amount of state pensions will be revised once per year, on October 1, according to the actual consumer price index. Furthermore, if the index is lower than 1, which means that no price increase is observed in the respective period of time, the state pensions will not be changed.