LOWERED EXPECTATIONS: Andris Vilks plans on getting the budget deficit down to 5 percent of GDP this year, not 5.5 percent.
RIGA - Latvia will continue to carry out measures with the aim of reducing the country’s budget deficit, so that the deficit reaches five percent of gross domestic product by the end of the year, Latvian Finance Minister Andris Vilks (Unity) said on Jan. 19 during the Euromoney Central and Eastern Europe conference in Vienna, reports Nozare.lv. He emphasized that Latvia will continue to implement measures to strengthen the country’s fiscal discipline, and confirmed that Latvia is already working on a structural reform plan which will be the basis of consolidation measures.
It is planned that the budget deficit will fall to 5 percent of GDP by the end of the year, and not the previously planned 5.5 percent of GDP. This will help ease further consolidation measures to achieve the country’s goal of joining the eurozone by 2014.
Vilks on several occasions emphasized that further budget consolidation measures will be based on structural reforms, and will need the support of the Latvian public. At the same time, he emphasized that Latvia is currently recovering from the economic crisis thanks to the many important decisions made. “Latvia is back on the road,” Vilks said.
Bank of Latvia President Ilmars Rimsevics emphasized at the conference that the export sector is what is driving Latvia’s recovery. Latvian manufacturers have regained their competitiveness, and have been able to increase their market shares in foreign markets. This proves that Latvia chose the right road to get out of its crisis, he says.
According to the 2011 state budget, consolidated budget revenue this year is projected at 5.1 billion lats (7.2 billion euros), with expenditures of 5.7 billion lats. The budget deficit, calculated according to the international ESA methodology, will be 5.5 percent of GDP.
In looking back at the causes for Latvia having been hit the hardest among the Baltic States by the global recession, and adding fuel to the regional debate and blame game, Swedish Foreign Minister Carl Bildt, in a statement, said that Parex bank’s collapse and bailout by the government is the main reason why Latvia is experiencing this economic crisis as it is. Not surprisingly, this comment “demanded a swift reaction” from the Latvian Ministry of Foreign Affairs, said Roberts Zile, member of the European Parliament and chairman of the board of All for Latvia-For Fatherland and Freedom/LNNK (VL-TB/LNNK).
According to Zile, Bildt’s statement “lacks economic logic and can be considered an unfriendly gesture against the country whose taxpayers, by maintaining the exchange rate of the national currency and carrying out huge budget consolidation measures, have taken up the main burden to save the financial system of the Baltic region.”
When the government rescued Parex, Swedish banks were able to avoid even more losses, asserted Zile.
“After this statement, the least the Latvian Foreign Minister could do would be to restore previous Minister Aivis Ronis’ idea to create a joint Latvian-Swedish commission to analyze the cause of the crisis,” said Zile. “Since the amount of Swedbank and SEB mortgages exceeded the amount of Parex’s mortgages significantly, claiming that Parex is the main reason for the crisis is more than tactless,” said Zile.
What Zile doesn’t seem to understand is that neither Swedbank nor SEB collapsed or forced the Latvian government to step in to take them over and guarantee deposits and loan repayment to creditors, as was the case with Parex.
Zile then claimed that it is already common practice among Swedish high-ranking officials to blame only Latvia for the crisis. Sweden’s attitude towards Latvia is unreasonably negative and causes losses for the Latvian economy, because elsewhere in Europe Latvia is being praised, or at least sympathized with in its difficult budget decisions.
“We have reason to believe that Swedish banks refuse to provide loans to the Latvian economy,” added Zile, without stating what these reasons are.
In an interview with the Estonian newspaper Aripaev Online, Bildt claimed that the large amount of Swedish bank capital contributed to the Baltic States’ recovery from the crisis. He said that Latvia found itself in a more complex situation not because of Swedish capital, but because of Parex bank, pointing out that it was Parex’s bailout that contributed to the deep crisis for Latvia. “They had one huge bank, and [Latvia] is still fighting problems caused by it,” he said.
At the same time, he emphasized that the Baltic States’ struggle against the crisis is impressive and deserves praise. “Latvia was hit hardest, while Estonia’s position was stronger thanks to the state of its finances and macroeconomic policies,” said Bildt.