Tallinn - Estonia's Prime Minister Andrus Ansip and his Latvian counterpart Valdis Dombrovskis met in the Estonian capital, Tallinn on Thursday to compare notes on the Baltic region's economic woes and to prepare for the forthcoming NATO summit to be held in Strasbourg and Kehl.

Ansip tried to strike an upbeat note despite the economic gloom in the two countries which have seen real estate bubbles burst and rapid growth go into an equally rapid decline.

"We cannot over-dramatize the economic decline in these countries, where growth in earlier years was on average faster," he said.

Dombrovskis noted that the Estonian government had been more forward thinking than his own country by amassing reserves during the boom years.

Both men also stressed the need to create an effective and open energy market in the Baltic region and their commitment to NATO.

"NATO remains the most important principle of common defence," Ansip said.

Earlier on Thursday, a spokesperson for Dombrovskis confirmed that the IMF had withheld a planned payment of 200 million euros (265 million dollars) because of the previous government's failure to enact all the conditions attached to a 7.5-billion-euro (10-billion- dollar) bailout package brokered by the IMF.

An IMF team was on the ground in Riga on February 20 when Prime Minister Ivars Godmanis resigned, and so was unable to complete its mission, which was necessary for the payment to be made.

Dombrovskis is currently attempting to renegotiate the terms of the 7.5-billion-euro economic assistance package agreed to by his predecessor.

According to the current arrangement, Latvia's budget deficit must not exceed 5 per cent of GDP, but Dombrovskis is arguing that the worsening economic outlook makes such a target impossible and is asking for a 7 per cent cap instead.

"Dombrovskis' comments today basically have to be seen as a rephrasing of what he had already warned about when he was appointed Prime Minister in March: that the Latvian government would be 'bankrupt' in June if it failed to get the planned payments from the IMF," commented Danske Bank analyst Lars Christensen.

"If the Latvian government fails to implement new fiscal measures very soon, there is a real risk that the Latvian government will go into default," Christensen said. (dpa)