Latvia and the Financial Crisis
|1.||Global financial crisis||4|
|2.||Financial crisis in Latvia 2008 – 2010||6|
|2.1.||Causes of financial crisis in Latvia||6|
|2.2.||Effects of financial crisis in Latvia||9|
|2.3.||Solutions of financial crisis in Latvia||12|
|3.||Future forecast of financial stability in Latvia||14|
The global financial crisis which started in the USA in 2008 was a powerful event which affected many countries. It could be said that the main causes was the real estate bubble and easily obtainable loans which evoke many consequences.
Before the crisis, Latvia had a fast growing economy since it joined the European Union.
Latvian financial crisis is dated from 2008 to 2010 and it had a major economic and political effect.
The main causes which overheated the economy of Latvia were real estate bubble, high inflation, credit boom and problems with Parex bank.
The main effects of financial crisis in Latvia were unemployment crisis, GDP downfall and emigration of people.
Latvia was strongly affected by financial crisis, therefore urgent solutions had to be made. Latvia had to implant a saving mode.
Government had to cut wages, reduce staff, consolidate the state budget, raise the taxes and start structural reforms.
In December 2008 Ministry of Finances published “Latvia’s Economic Stabilization and Growth Revival Program” - On December 23, 2008 the IMF Executive Board approved a “$2,35 billion 27-month Stand-by arrangement for Latvia.
One of the solutions could have been devaluation of lat, but government strongly denied it.
In 2010 Latvia started to rise from the ashes of its deep economic recession – manufacturing was recovering, export was growing and GDP started to rise.
Future forecast of financial stability in Latvia seems to be positive - everything will continue to develop, although there can be some effects from possible financial crisis in EU countries.
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