Economy Ministry's recovery plan offers no immediate solutions

  • 2009-10-21
  • Staff and wire reports

Actions speak: Prime Minister Valdis Dombrovskis (New Era) is ready to confirm to the Education and Science Workers' Union that he will increase teachers' wages by approximately 30 percent over current levels. The Union will soon decide on whether to organize a strike over next year's teachers' wages.

RIGA - The Economy Ministry has developed a medium-term economic recovery plan that will serve as an addendum to the Latvian economic stabilization and growth recovery plan, reports news agency LETA. The medium-term plan suggests that, in the medium term, government work should principally focus on providing purposeful and targeted state support, and on promoting development of a competitive business environment.

One of the principal economic policy aims defined for Latvia is to achieve 5 percent annual GDP growth in the 2013-2015 period, to retain moderate inflation and ensure that by the end of 2015 Latvia's GDP reaches 17 billion lats (24.2 billion euros). The recovery plan foresees reducing unemployment to less than eight percent; another crucial target is to channel financing equal to 1.5 percent of GDP to education and science in 2015.
In order to attain these goals, the government has to concentrate on helping to boost the competitiveness of Latvian companies in free trade markets of goods and services, as well as create preconditions for production of knowledge-based goods and services that will allow for the creation of larger income in the future.

The report notes that in times when the budget is constrained, state support should be targeted and selective. Previous experience has proved that market mechanisms are unable to automatically restructure and shift focus to more profitable sectors of production, or stimulate transition from the use of low-technologies and a low-cost workforce to a knowledge and innovations-based business model.
In the medium and long term the state must create a favorable environment for the development of sectors with economic advantages, reports the Ministry.
In the near term, however, Latvians will have to adjust to shrinking salaries for the next two years, as austerity measures are pushed through the budget in accordance with measure connected to its international loan bailout program.

Gross wages will on average decline 5 percent this year and 9.8 percent in 2010, says the Finance Ministry, reports Bloomberg. Registered unemployment will peak at 13.8 percent in 2010 as gross domestic product contracts 18 percent this year, leading to deflation in 2010 and 2011, says the ministry.

Inflation is set to average 3.5 percent this year before prices drop next year. Deflation in 2010 will average 3.7 percent and 2.8 percent in 2011, forecasts the ministry.
Unemployment will continue to be a problem for the government, as levels, officially, will be at 16 to 17 percent this year and will remain at the same level into 2010, says the Economy Ministry. The economic situation in the country, expected to stabilize in 2011-2012, should push demand for labor up only then, with unemployment dropping proportionately.
The Economy Ministry predicts that in 2009-2010 the number of employed persons will be at least 15 percent lower than in 2008. In the worst case scenario the fall in employment could even reach 18 percent.

Businesses, say the ministry, will strive to achieve economic growth through raising efficiency rather than increasing the number of employees, therefore up until 2015 employment levels will grow only moderately and the percentage of employed will stay at approximately the same level as in 2005. For this reason the ministry forecasts stronger competition on the labor market.
The Welfare Ministry is of the opinion that the average unemployment level in Latvia could be at 15 percent this year, with the figure going up to 16.4 percent at the end of 2010. At the beginning of October, registered unemployment in Latvia reached 13.3 percent, or 148,612 persons, reports the State Employment Agency.

However, according to a survey carried out by the personnel management company WorkingDay Latvia, almost every other unemployed person in Latvia says that they are not registered as unemployed. The actual unemployment level in Latvia could therefore be up to two times higher than the registered unemployment level.