RIGA - The geopolitical instability after Russia's invasion in Ukraine may reduce private investments in Latvia, said Bank of Latvia president Martins Kazaks in an interview with LETA.
"Geopolitical background in some cases might reduce the wish of the private sector in invest because insecurity and uncertainty in some cases might overwhelm. There should be rapid steps from the part of the state. If it is clear that the private sector at some point does not use, for example, construction capacity, then the state might step in and use it," the Bank of Latvia president said.
At the same time, Latvia's economy and the Baltic states now are safer than even because there is no direct military threat to NATO member states. Still, Russia's attack on Ukraine might reduce the wish of investors to invest.
"Inflation may also increase costs, but I hope that reduction of investments and lending will be short term," said Kazaks.
He admitted though that lending has been a problem already since 2008 and 2009. Weak lending is reflected in weak investments. Therefore, over the past years, Latvia has been lagging behind Estonia and Lithuania.
"Looking at the next business cycle, we may not make such mistakes. Investment activity should be much higher. It is not just a matter of banks. It is a matter of risk assessment and how cautious banks are about risks. It is the matter of business ambitions. Do companies wish to be large only in Latvia or also in the world? Companies may not remain just in Latvia because Latvia is a small economy with a declining population, there is limited growth possible. Let us look beyond Latvia's borders! It will require larger investments and lending necessity," said Kazaks.