LATVIA - The International Monetary Fund (IMF) has criticised Latvia's refusal to reinstate gradual increases to its second pillar pension system.

At the end of last year, the Latvian government decided to leave contribution levels to the second pillar at 2%, the level at which they had been cut during the recent financial crisis.

In a statement, the IMF noted that this measure will "provide a temporary revenue flow" but added that it does not "represent fiscal adjustment".

The IMF said: "Long-term sustainability is not improved, as the higher first pillar contributions will increase the build-up of notional defined-contribution accounts, but without any corresponding savings to pay for them."

Additionally, the organisation argued that political considerations were complicating the "serious discussion" on ways to find savings from pensions in a way that "guarantees the poorest pensioners are protected".

However, in a letter of intent issued in May, the Latvian government stated out that a concept paper on the "long-run sustainability of social security" has been completed with the assistance of the World Bank, as well as expertise from the IMF.

It added that the paper would "form the basis for a comprehensive pension reform which we intend to introduce in the context of the 2012 budget".

The government also stressed that it was committed to "preserving the sustainability of the three pillars of our pension system and to restoring contributions to the second pillar to 6% of gross salaries by 2013".

However, it conceded that this would only be possible "provided that the budgetary situation improves in line with our forecast".

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