DowJones: IMF's Lagarde: Latvia Program Has Been A Success

RIGA--Latvia's economic recovery after implementing tough reforms is a "tour de force" that sets an example for other European states, Christine Lagarde, the International Monetary Fund's managing director, said Tuesday.

The country's approach to restoring economic health "can clearly work in Europe," Lagarde said in a speech in Riga.

Latvia must now achieve its goal of adopting the euro, which would boost financial stability, promote integration with euro-zone states and give a strong signal of stability, Ms. Lagarde said.

Latvia's economy shrank by almost a fifth in 2009 during global credit crisis. The country was particularly vulnerable to financial difficulties at that time because of the high levels of its external debt and current account deficit. The government responded with tough fiscal adjustment policies and an internal devaluation aimed at boosting competitiveness through lower domestic wages and prices.

The economy subsequently rebounded, expanding 5.5% in 2011 and 6.8% in the first quarter of 2012 from a year earlier, according to preliminary data.

"Latvia decided to bite the bullet...to go hard and go quickly," Ms. Lagarde said.

The biggest factor in the country's success was the impressive collective determination of Latvia's authorities and population to carry out reforms, she said.

Baltic states must now undertake measures to boost labor productivity and competitiveness, and improve social cohesion, she added.