Global rebounds boosts Latvia

RIGA - Latvia has been recovering from its economic crisis faster than previously planned for, Prime Minister Valdis Dombrovskis (New Era) told members of the press on Sept. 10, after the opening of the annual high level foreign policy and security policy forum - Riga Conference 2010, reports Nozare.lv. “Even though it was previously forecast that Latvia’s economy will fall by four percent this year, current Finance Ministry figures show that Latvia’s economy will fall by two percent this year, with some experts predicting only a 1.5 percent reduction,” said Dombrovskis.

At the same time, the prime minister pointed out Latvia’s economic growth the previous two quarters. “During the past 18 months, we have tried to change Latvia’s economic structure with the help of European Union funds and other means. We have seen the fastest growth in industrial production and exports,” Dombrovskis said.
The prime minister also expressed the point of view that Latvia’s financial situation is improving, and that budget revenue is even a bit more than previously planned. “We are on the right track,” beamed Dombrovskis.

Answering a question regarding last week’s visit by German Chancellor Angela Merkel to Latvia, Dombrovskis said that the visit allowed for the strengthening of relations between the two countries, as well as to discuss economic cooperation and issues related to energy. “It is clear Latvia must get out of its energy isolation and dependency on Russian gas,” the prime minister said.

The real economic picture is not so rosy as the prime minister portrays, according to Auditor General Inguna Sudraba. “We have improved macro-indicators, the flow of money has increased, but the economy is not developing,” said Sudraba in an interview with Latvian State Radio. At present there is a short-term viewpoint at the base of the national economy: borrowed money is being paid out in support payments, which provide help today. As soon as the unemployed work programs finish, people are again left without income, as no alternatives have been created for earning money after that, explained Sudraba.

If this short-sighted approach is continued, then nothing will remain but to raise taxes and cut pensions, warned the auditor general, adding that further reducing social support and failing to create alternatives for earning money will not lead the country out of the crisis.

In her opinion, the crisis in Latvia will be over when a stable economic environment has been created here. She allows the possibility that this winter could see a second wave of the crisis, when “many will declare themselves bankrupt.”
According to Sudraba, “we have not learned how to govern a country so that our citizens are ensured good living and working conditions. An environment has not been created to make people here feel secure.”

Commenting on the results of the recent audit of state functions, Sudraba stressed that this too is based on the wrong approach. “If the approach begins with looking to see what not to do or what to do less of, then there will always be sabotage. Of course, when you take funding away, civil servants and officials will protest,” believes the auditor general.
Sudraba indicated that the essential thing is to start by defining “what we want to achieve, and then evaluate what needs to be done to reach this goal,” stressing that simple cutbacks will not solve the country’s financial problems.
Finance Minister Einars Repse (New Era), however, says the recession in Latvia has come to an end, as he reviews the latest economic figures. “GDP has grown 0.8 percent over the last quarter, which is a better figure than the initial estimate a month ago; therefore, the pace of GDP growth has increased. This once more confirms that the recession has come to an end, as GDP has now grown for the second consecutive quarter, which is internationally recognized as signifying the end of a recession,” said the minister.

The increase in GDP can mainly be explained by a large growth in production. Although GDP grew compared with the previous month, it still shows a fall of 2.1 percent year-on-year. It should be noted that further GDP growth is largely dependent on external economic activity, as internal demand has remained low, reports the Finance Ministry.
The largest growth in the second quarter was shown in sectors connected with exports, such as manufacturing, agriculture, forestry, and energy. In the service industry, growth was observed in transport and communications, partly thanks to the good results shown by national airline airBaltic and Riga International Airport, as well as some cargo shipping areas. A small increase was also seen in the trade sector, indicating increasing stability in the retail industry. The largest fall is still being registered in the construction and finance sectors.

If current trends continue, a return to year-on-year growth could be expected already for the second half of 2010, predicts the Ministry.