Latvia ends year with trade surplus

RIGA - The surplus in Latvia’s current account trade balance at year-end stood at 1.25 billion lats (1.7 billion euros), or 9 percent of GDP, said Bank of Latvia press secretary Martins Gravitis, reports business portal Nozare.lv. In the fourth quarter last year, the surplus in the current account amounted to 12 percent of GDP, and the combined balance of goods and services was positive. Bank investment in equity to cover losses underpinned the inflow of net foreign direct investment in Latvia in the fourth quarter. Direct investment flows also were directed into agriculture and manufacturing.

Net foreign debt, in nominal terms, decreased from 8 billion lats to 7.5 billion lats in the fourth quarter of 2009, yet remained broadly unchanged vis-a-vis GDP, at 56 percent. The private sector, primarily banks, accounted for the recorded nominal decrease by making long-term debt and trade credit repayments as well as by investing in short-term foreign assets. The World Bank loan to the government was placed with the Bank of Latvia, hence not affecting the country’s net external debt, while gross external debt rose to 154 percent of GDP.

With economic recovery continuing in some sectors and the current account in positive territory, the external debt burden may rapidly be reduced, it is hoped, particularly so if a major part of financing required for development is attracted as direct equity investment, rather than more debt. As the situation in the banking sector stabilizes and risks associated with the term structure of financial resources abate, the overall external debt assessment will increasingly depend on the net external debt, whose burden amid the steep economic downturn has not increased.

Economic growth requires a consistent and clear fiscal policy, which is based on financial sustainability, enhancement of employment, and promotion of exports, the Bank of Latvia said. First, it would minimize the key factors hampering Latvia’s economic growth, the limited private sector’s access to funding and high unemployment in particular. Second, it would accelerate economic growth by re-allocating resources towards the production of internationally competitive goods and services.  A country’s economic growth and attractiveness for foreign investment is also dependent upon a stable political system, a ‘level playing field’ in which all investors, not just local oligarchs and ‘insiders,’ receive preferential treatment (an environment lacking in Latvia today), common sense laws, an objective judiciary and a supportive investment policy, also at a deficit within the country.