How Not to Experience “Nothing Special” Again (Report in Macroeconomics)
|Latvia in March, 2011||6|
|Macroeconomic variables in year 2011/2012||6|
|Latvia and Counter Cyclical fiscal policy||10|
|Increasing Trust and Credibility||14|
|Listening to guidance more carefully||15|
|Financial Sector in Government’s Hands||17|
|Blessed by EBRD||18|
|“Good investment climate”||21|
|Investment in Infrastructure||25|
In the past few years the economy of Latvia had jumped in unprecedented heights. The government of Latvia felt that this growth would last forever. Even experiencing the sunset of the ‘fat years’, they still thought that the situation in Latvia was nothing special indeed. When problems were knocking at the door Latvians were still comforted by the manager of the Financial and Capital Market Commission (FCMC) stating:
„All in all we should not be too excitedly worried about the economic situation here” (Baltic, 2008). Only closeness of collapse of the government managed to open their eyes.
In December, 2008, the International Monetary Fund (IMF) agreed to help the Republic of Latvia with the economic stabilization plan by signing a stand-by agreement worth SDR 1.521626 billion (€1.7 billion). The aim of the program, which will last until March 2011, is to stop the liquidity problems the financial institution have right now and guarantee long-term external stability (International Monetary Fund, 2008).
Assuming that the IMF plan will be successful and the situation in Latvia will be regaining stability by spring 2011; taking into account that life does not stop after the plan is over, the authors of this report seek to find out what actions should the government undertake for the economic situation in Latvia not to be flawed again and to become somewhat stable after March, 2011.
The report investigates the most appropriate government spending policy, regulations of the financial market and opportunities of JSC Parex bank. Furthermore, ways of ensuring inflow of investments, as well as improvements in net exports are discussed.
Latvia in March, 2011
The report is based on several assumptions about Latvia’s economic situation after the IMF plan is over. The first and most important one is the assumption that the plan has been successful, meaning that the full financial aid has been received and thus Latvia has managed to alleviate its current immediate liquidity pressures, reinforce competitiveness and still operates under a fixed exchange rate.