RIGA - Latvia is currently at the crossroads, without any leeway to make mistakes, Bank of Latvia President Ilmars Rimsevics announced on Oct. 12 as he opened the conference Global Challenges and Local Opportunities: Achievements and Prospects in the Baltic States, reports LETA. Similarly to his previous speeches, Rimsevics pointed out that the 2012 national budget is not simply another budget, but it will determine how the nation will exist during the next ten years. These are not just empty statements, since the difference is clear between Latvia and Estonia, which has well-adjusted finances and has introduced the euro, he added.
“At the moment, many believe that it will be good if we introduce the euro, but that nothing will happen if we do not. No, there will be consequences. In ten years, we will be wondering how come others are happier and living better than us,” said Rimsevics.
The bank president highlighted that the euro “does not determine everything,” however, it disciplines the state and provides the opportunity to participate in making decisions on the most important issues, allowing to increase budget revenue, create new jobs and investments.
Rimsevics also said that in 2014-2015, Latvia must refinance its external debt in the amount of 2.5 billion lats (3.5 billion euros); however, in order to do so on beneficial terms, the interest rates are highly important and they could affect when Latvia joins the eurozone. “There is a difference whether these are 2 to 2.5 percent, or 6 to 6.5 percent. According to the current rates, we will overpay 100 million lats for every year we are not in the eurozone,” emphasized Rimsevics.
He went on to forecast that the global economy will face a second recession wave; however, it is not yet known how severe it will be. Although only three years ago it was very rare to hear talk about a possible second recession, today such talk has become normal, with people questioning if it will happen, noted Rimsevics.
“However, we do not know how severe this recession will be. Will it wipe out everyone onboard, some, or only one? Will this wave go over our heads, or will it only reach our ankles?,” Rimsevics asked rhetorically.
According to the head of the central bank, current economic analyses and expert forecasts lead one to think that another recession is inevitable. Such news is not comforting. Many countries are seeing their credit ratings drop, as well as reducing their growth figures almost weekly. European Union growth will at best reach 0.1 percent next year, with Italy and Spain posting no growth.
“I keep hearing that Latvia is prepared for this second wave. I do not believe this! If this recession hits us, the growth of Latvia’s national economy will drop more rapidly than previously projected,” Rimsevics warned.
According to him, Latvia can only begin talk of being protected from a possible recession if it has a balanced budget, or a budget with a surplus. “The previous crisis showed that less is better. That by reducing budget expenditures, economic growth can return,” added Rimsevics, urging the government to continue reducing budget expenditures, because the economic situation in Europe is deteriorating day by day.