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Latvia

Page history last edited by Brian D Butler 13 years, 5 months ago

 

Recommended Reading:

 

In Latvia's Agony Continues In The Second Quarter - With Little Relief In Sight, Edward Hugh takes a look at economic data from Latvia and the picture isn’t pretty.

 

Table of Contents


 

 

Latvia

 

see also:  Baltic States

 

Latvia is located on the shore of the Baltic Sea at the center of the Baltic states. The country is connected with Finland and Russia in the North and Central/Western Europe in the South. Latvia has a population of 2.5 million people spread across its main cities of Riga (capital,) Daugavpils and Liepaja. An international airport and Central Europe’s largest container transportation port are located at Riga.

 

The Information Technology and telecommunications sectors are growing most rapidly in Latvia, with the IT market capacity in the country doubling every six months. Latvia is now looking to develop its sector in software development outsourcing through its home-grown companies such as DATI, Eastern Europe’s largest private contract software developer. Overseas investors in the region include Sonera, Telia, Merita Nordbanken, Vereinsbank und Westbank, ACMA Technologies and PIVOT Group.

 

The recent boom in Latvia’s software sector has been assisted by an education system that produces a large number of IT specialists. 45,000 people study at the country’s 28 higher education institutes – around 30% of those students graduate with an IT related degree. The two main centers of IT research are at the Institute of Mathematics and Computer Science at the University of Latvia and the Institute of Electronics and Computer Science at the Latvian Academy of Sciences.

 

Latvia also has one of the highest percentages of scientists and engineers in Europe, available at highly competitive wage rates, contributing to the country’s development as a successful high technology and R&D center.

 

Regions / Cities

 

- Riga

 

Investment Promotion Agency:

 

Mr Kaspers Skalbergs

Latvian Development Agency

Perses 2

Riga

1442

Latvia

 

 

tel: +371 728 8842

fax: +371 728 0458

 

Riga

Riga is the capital of Latvia and is located on the banks of the Daugava River. The city is at the crossroads of eastern Europe, Western Europe, Russia and Scandinavia and is the largest industrial center in Latvia and the Baltic States. The international airport, the harbour, a well-developed railway and highway system offer investors an efficient and fast transport infrastructure.

In recent years the city has gone through an industrial re-structuring which has seen a decrease in production carried out in the city and an increase in the service sector, particularly in financial services. The conditions for foreign investment have also improved recently.

 

The major companies operating in Riga include Lattelecom, which serves the local telephone networks, and both LMT and Baltcom, both telecommunication companies. Riga is the largest education center in Latvia with more than 160,000 students at 220 different schools and 14 public and 9 private higher educational establishments.

 

 

Macro economic Profile 2008:

 

Estonia & Latvia:

Estonia and Latvia have been the greatest economic successes, but even the sun has its spots. They have fixed their exchange rates to the euro. Therefore, their domestic prices have risen with increasing productivity in the export sector, and they have imported substantial inflation—currently 18 percent in Latvia and 12 percent in Estonia.With their fixed exchange rates, these countries cannot pursue any monetary policy, and their huge current account deficits have been financed by foreign direct investment and bank loans. Suddenly, the foreign banks that own the Baltic banks have minimized their loans. Demand, consumption, and real estate prices have fallen. The double-digit growth rates have plummeted to 2 to 3 percent. The question is how large bad debts will be revealed, but so far the Baltic states seem to take the hit well. As in Kazakhstan, their success story is likely to reemerge.

 

 

Crisis 2008/09

 

12/2008:  "Latvia’s central bank has burned through €1 billion ($1.4 billion), around a fifth of its reserves, since mid-October to defend the national currency, the lat. This is pegged to the euro in an arrangement similar to a currency board...

 

 

Problem:

Some 85% of loans to Latvian households and firms are denominated in euros and other foreign currencies.

 

To the rescue:

  • Swedish and Danish central banks this week offered a combined €500m in short-term swap facilities, allowing the central bank to keep exchanging lats for euros
  • The IMF-led bail-out is likely to amount to over €7 billion, with contributions from the Fund, Nordic countries and Latvia’s Baltic neighbour, Estonia.

 

No devaluation expected (yet)

  • Plan likely will NOT include a devaluation....why?...because Swedish and Finnish banks, which own the bulk of Latvia’s banking system, could find their own creditworthiness suffering.
  • A Latvian devaluation would also be likely to topple the currency boards of Estonia and Lithuania, and to endanger the precarious stability secured in recent weeks in other wobbly east European countries such as Hungary.

 

Speculation:

  • after some unwise remarks by the finance minister about a possible devaluation, the central bank lost more than €100m in reserves in a single day

 

Forecast (and IMF demands)

  • tax rises
  • spending cuts (together about  7% of GDP).
  • Public-sector salaries will fall by 15%. Private employers are making deep wage cuts too.
  • plan calls for big structural changes, including thorough reform of the financial system

 

Banks in trouble

  • The crisis started with near-failure of a locally owned bank, Parex, which enjoyed a lively offshore business taking deposits from Russians, some of which appear to have been lent, unwisely, to locals. Having pushed the central bank into printing 200m lats ($390m) to support Parex, the government is now nationalising it.

 

 

 

 

 

External Links

 

 

Library of Congress: Country Studies

 

Excellent source of historical information about a country; "The Country Studies Series presents a description and analysis of the historical setting and the social, economic, political, and national security systems and institutions of countries throughout the world.

 

 

 

 

 

 

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