State-owned assets should be sold to boost economy

  • 2009-11-12
  • Staff and wire reports
RIGA - Maris Zanders, chief editor of Latvia's business magazine Kapitals, says that resources needed to stimulate the economy could be obtained by selling state property, reports news agency LETA. The call to sell off state property, if done transparently, could serve to boost state coffers during these difficult economic times while at the same time turning over management and operations of land and companies to more productive private industry.
e editor, commenting on the government budget crisis and the strict terms it faces in receiving loans from international lenders, complains that it is still unclear why the group of lenders insist on next year's budget consolidation by 500 million lats (714 million euros), even though the government claims that the other demand, limiting the budget deficit to 8.5 percent, will be met.
"Most probably lenders [worry] that the residents of Latvia could turn to the Constitutional Court, contest many of the introduced and planned budget cuts and, eventually, as a result, the deficit could grow to 10 percent. Therefore, they take precautionary measures [to protect themselves] with a reserve," surmises Zanders.

"However, the question arises as to why a 10 percent budget deficit should also cause so much nervousness," he questions. Zanders points to the likelihood that this year the government deficit for the U.S. will be around 13.5 percent of GDP, in the UK about 14.4, 10.6 percent for Spain and 8.2 percent for France.

These countries, however, despite the economic slowdown and budget problems they face, still have the trust of foreign investors who are willing to buy the government debt and finance the budget deficits. The investors believe that they will be paid back. The Latvian government has lost the trust of foreign investors.

Zanders continues that "We are reminded that we keep on spending more money than we earn, that we live in debt. It leads to the conclusion that other debtor nations are for some strange reason considered better than Latvia. The frenzy around Latvia and statements that we are almost a threat to stability in Eastern Europe makes one believe that having debt makes us transgressors. This is not the case; we have only followed the example of our older brothers. What Latvia is asked to do over a few years, to put the state's financial system in order, the U.S., for example plans to accomplish by 2025."
He spurns as ungrounded statements that Latvia would find it difficult to obtain a loan, recalling that such problems occur in cases where there is a "coup in the country or a similar turn of events. Sanctions cannot be imposed because of a freer interpretation of economic commitments."

The Latvian government tried and failed on June 3 this year to raise money through a short-term Treasury-bill auction, in the amount of 50 million lats (71.4 million euros). Foreign investors showed no interest. Fears centered around the possibility that Latvia was ready to devalue its currency due to the economic situation, reported the Financial Times.

Latvia has few alternatives now from where to borrow money other than the IMF-led group of lenders.
Zanders says that "The decision to withdraw such a large sum of money from the economy to avoid making the international lenders angry and keep politicians' promises will have similar consequences as those of a natural disaster or a war. As President Zatlers points out, people can also survive such horrors, but it brings little relief. The government should think of ways to ensure that after these 12 months of experimenting [with the budget], at least a few more million 'new lats' will appear in the budget." These "millions" can come from selling state property, he reiterates.

This is not the wrong time to sell state property. Zanders emphasizes that "People's lives right now are a more important factor than the expected higher price the state would receive if [waiting to sell the properties] after a few years. Furthermore, claims that everyone would now be offering only disproportionately low prices for property and businesses are not true: every week banks, telecommunications companies, etc., are being sold."

These are only excuses, he says. "The government should set up a group which would receive salaries proportionate to the sum of money obtained in sales deals; the group should be in charge of selling Parex bank, state shares in telecommunications companies and other enterprises, and so on. What other alternatives do we have?" he asks.
Latvia is dependent on a 7.5 billion euro aid package from the IMF and EU lenders to sustain it through the economic crisis.