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Update No: 255

It looks as if a political revolution may be in the offing in Latvia. A new centre-right pro-business political party was officially registered on February 20th, with a head start in opinion polls ahead of parliamentary elections due in October. Simeon II, the former king of Bulgaria, has shown what can be done in a few months in a transition economy if a new party has a charismatic leader; he swept to power in Sofia last year only months after forming his national movement.
In Latvia's case the key figure is Einars Repse, who was the central bank chief from independence in 1991 until December when he resigned to form his party, New Time. He has been effectively the most important figure in Latvian politics for a decade, the unchanging fulcrum of the whole reform programme, while governments have been and gone. He can, therefore claim much of the credit for the achievements of the last ten years, which have been remarkable. This puts him in a different position from any other opposition politician or, indeed, any politician in Latvia. He clearly feels the time is coming when he should enter centre stage, having left behind a chief to succeed him at the central bank and a team under him totally loyal to his ideas, which are orthodox monetarism. 
The Latvian republic's economy under Repse's tutelage was doing remarkably well. It is still doing so. Growth of GDP is set for 4.5% in 2002, after 7.9% in 2001, according to the EU, but the IMF puts growth at 6% for both 2001 and 2002, which shows how the figures should be treated warily.
The growth is coming from the starting point of a very low base, its GDP per capita being 6,600 Euros or 29% of the EU average. But that very fact is luring foreign investors, attracted by low wages for highly educated workers (the one solid achievement of communism was excellent education). 
The stock of direct foreign investment (FDI) to date is US$4.2bn, a high figure for a nation of two and a half million. The investment has been across the board, taking advantage of Latvia's superb location as the natural Baltic gateway to and from Russia.
The local Russians comprise one third of the population and predominate in the main six towns, including the capital, Riga. Hence the main internal problem is inter-ethnic relations. Latvia has far more Russians than neighbouring Estonia or Lithuania, precisely because of its excellent location and ports for trade.
The Latvians were discriminating against local Russians throughout the 1990s. But their Western friends have persuaded them subsequently to take a more accommodating line. It is, therefore, inappropriate for Putin, who tried to rouse up the Russians there by an inflammatory interview on Christmas Eve, to be making an issue of the matter now, especially given his own dicey record on human rights. 
The IMF regards Latvia as a model performer among transition economies and it is now in a leading position among the EU candidate countries. Inflation is estimated at 2.5% for 2001 and 3% for 2002, well within acceptable limits. The prospects look excellent for this small, but strategically-placed Baltic republic

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FINANCIAL NEWS

Minister stands by forecast

The country's finance minister said he was sticking by his forecast of 6% economic growth this year, disagreeing with the central bank and the International Monetary Fund, both of which see this as too optimistic, The Wall Street Journal Europe has reported.
"As a minister of finance I am sometimes accused of being too optimistic, but until now the forecasts of the Ministry of Finance, even when they seemed at the beginning to be unrealistic, have always come true afterwards," Gundars Berzins said.
Mr Berzins predicted the current-account gap would remain fairly high for some time, but he also forecast progress in reining in the budget shortfall and cited strong foreign investment.

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FOREIGN ECONOMIC RELATIONS

Riga, Tehran in quest to booster bilateral relations

The Latvian Deputy Foreign Minister, Peters Vyvares, recently held talks in Tehran with Foreign Minister, Kamal Kharrazi, on ways to develop Tehran-Riga relations, IRNA News Agency reported on February 25th. Vyvares said that Iran has a special role to play in the regional and international developments and hoped that serious steps would be taken to develop bilateral relations. 
He said that the Islamic Republic of Iran enjoys high economic capacity and Latvia is keen to develop economic cooperation with Iran. Kharrazi said that Iran is also interested in fostering economic cooperation with Latvia. He said that Tehran and Riga have historical and cultural amity and called for boosting parliamentary cooperation between the two countries.

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INDUSTRY

Riga Free Port ends agreement with Uksoil

Riga Free Port's board decided on February 22nd to terminate the lease agreement over a 30 hectare sector at Krievu Island with the joint-stock company Uksoil that intended to construct one of the world's largest mineral fertiliser plants there. The Riga Free Port terminated the agreement because no economic activity had taken place at the territory for several years. 
Uksoil must submit in new proposals within one month about its further work so that the agreement can be reinstated, LETA News Agency quoted the Port Board chairman, Gundars Jobar's press secretary, Guntars Kukuls as saying. Uksoil said it could begin construction of a large-scale mineral fertiliser plant and terminal on Krievu Island in the territory of Riga port by mid-April. The new facility would produce 865,000 tones of crystallised carbide annually and export the commodity through the terminal to South America and Asia. The project could cost about US$500m, said Uksoil's vice chairman of the board, Sergei Nasonov. The company's average turnover would be about US$150m. The plant would be dissembled after 25 years of operation according to global practice.

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