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  LATVIA

REPUBLICAN REFERENCE

Area (sq.km) 
64,589

Population
2,385,231

Principal 
ethnic groups 
Latvians 52.0%
Russians 34%
Belarusians 4.5%

Capital 
Riga

Currency 
Lats

President
Mrs Vaira 
Vike-Freiberga

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Background:
After a brief period of independence between the two World Wars, Latvia was annexed by the USSR in 1940. It reestablished its independence in 1991 following the breakup of the Soviet Union. Although the last Russian troops left in 1994, the status of the Russian minority (some 30% of the population) remains of concern to Moscow. Latvia continues to revamp its economy for eventual integration into various Western European political and economic institutions.

Update No: 263 - (26/11/02)

Latvia has a new government under its brilliant technocrat Einars Repse, for long the chairman of the national bank. He decided to enter the political fray only recently, forming a new party earlier this year, which duly won the elections, New Era.

New era for Latvia
Repse has a new idea of how Latvia should be governed. He wants there to be a government of experts coming from all parts of the political spectrum and from outside it, who are all of proven probity. There has been too much corruption and pandering to vested interests in Latvia since independence in 1991.
The main party in power for the last eleven years has been Latvia's Way, whose leader, Andris Berzins, was the previous premier, head of a coalition. But Latvia's Way failed to secure the 5% of the vote needed for parliamentary representation and so diminished has gone the way of Solidarity in Poland, out of parliament altogether.
There is no reason to suspect the integrity of Berzins himself or most of his ministers. That is not the point. No serious campaign against corruption has been mounted, as yet. Repse intends to change that. A new era is, indeed, in the making.

Heading westwards
The main framework of policy in Latvia is not in dispute between the different political parties. All are agreed that Latvia should join the EU and NATO membership is now achieved.
President Vaira Vike-Freiberga is a tireless exponent of this line and addressed the Latvia Intelligentsia Conference to this effect recently. But she added a twist. Joining both organisations will affect civil society in Latvia profoundly. She is almost certainly right.
As she pointed out, NATO membership will greatly enhance the confidence of foreign investors in Latvia. So will EU membership. And FDI is the greatest catalyst of change imaginable, the dissolvent of old ways and attitudes and the powerful promoter of the new.
As regards the EU, accession negotiations are to be closed in December at its summit in Copenhagen. But she points out that the process of moving towards the EU cannot be regarded as complete. For instance, Latvia is the only candidate country which has a major problem with contraband. This is undoubtedly due to its large Russian population, one third of the total. It would be absurd and wrong to deem them all crooks. Far from it. But links to Russian mafia amongst the rogue elements indubitably exist. This is what the European Commission is pointing out.
Foreign investment in Latvia is rising ahead of the prospective junction with the West. But the major incursions can be expected later.

The IMF approves
The IMF is closely involved with Latvian developments. It has praised improvements in the macroeconomic situation and the achievement of reforms. But much remains to be done.
That is what Repse feels confident he is the right man to do. And there is a good chance that he is quite right. 

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BONDS

Latvia to issue more Eurobonds to refinance maturing ones


Latvia will issue Eurobonds in 2003-2004 in order to pay the last coupon on and redeem a first five-year Eurobond issue that matures in May 2004, a Finance Ministry official said.
Latvia placed its first Eurobond issue, totalling 150m Euro, in May 1999. The Baltic country placed an additional 75m Euro of the Eurobonds in September of that year.
The bonds have an annual coupon yield of 6.25%, New Europe reported recently.
Inguana Sudraba, deputy state secretary at the ministry, said Latvia would probably not be able to find money in its budget to service and redeem the bonds, and the government will not be able to borrow domestically.

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ENERGY

Finance Ministry launches work on oil tax amendments

The Latvian Finance Ministry has begun drawing up proposals for amending the law on excise tax on oil products, which stipulate that excise tax on diesel fuel will not be raised as of January 1st, 2003, LETA News Agency quoted the ministry's press secretary, Baiba Melnace, as saying. It is expected that the Finance Ministry will not submit the draft amendments until the cabinet meeting on November 12th. 
According to the law 'On Excise Tax on Oil products,' the excise tax on diesel is to be raised from 100 lats to 130 lats per 1,000 litres as of 2003 according to requirements set by the European Union (EU) to harmonise the tax in Latvia with that in EU countries. Minister of Finance, Gundars Berzins, pointed out that the tax's effect on the national economy must be evaluated in the context of all Baltic countries. "Since both Estonia and Lithuania are not going to raise the excise tax on diesel fuel, a higher tax in Latvia could cause losses for both businessmen and the national budget," Berzins said. State Revenue Service Director General, Andrejs Sonciks, had also admitted previously that talks should be carried out with other Baltic countries on simultaneous raising of the tax or else irreversible losses would be suffered by revenues from taxes and the national budget overall.

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FINANCIAL NEWS

IMF praises Latvia's macroeconomic development

Concluding their mission in Latvia, representatives from the International Monetary Fund (IMF) praised improvements in the national macroeconomic situation and achievements in the implementation of the 2002 national budget. During a meeting with Prime Minister Andris Berzins, the IMF representatives admitted that all preconditions have been created so that Latvia's fiscal budget deficit this year meets criteria set by the IMF, LETA News Agency quoted the communications department at the State Chancellery, as saying.
The IMF mission pointed to achievements in improving the macroeconomic situation, placing Latvia among the European Union (EU) applicant countries that have attained the best results.
IMF officials emphasised the cabinet's faculty to boost economic stability which has resulted in a growth in direct foreign investments.
During a meeting with the Minister of Finance, Gundars Berzins, IMF representatives discussed amendments to the national budget of this year, Latvia's development this year, forecasts of Latvia's macroeconomic showings in 2003 and next year's national budget, the Ministry of Finance's press secretary, Baiba Melnace, said.

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INFORMATION TECHNOLOGY

Latvian software brains plus American financial muscle 

There is a widely held belief that Baltic firms acquired by foreigners will be at best very junior partners in the marriage. But one Latvian technology firm allied to an American giant for the past two years has fashioned a relationship of equality - and is proving that the Baltics can make money in more clever ways than just by chopping timber or transporting oil, Philip Birzulis wrote in the Baltic Times.
SWH Tehnologijas was founded in 1994 after the restructuring of SWH Riga, one of the first technology firms in post-Soviet Latvia. The humble start-up enjoyed robust growth, and within four years saw its staff balloon to 140 people. More importantly, the firm quickly gained a serious international reputation as one of just nine global core suppliers of software for IBM.
In 2000 SWH Tehnologijas became a subsidiary of the U.S. multinational Exigen Group, and in the process changed its name to Exigen Latvia. According to general director Guntis Urtans, the Americans were looking for a large software developer in Eastern Europe with a good cost-performance ratio, and the Latvian operation best fit the bill. 
Thanks to its achievements, the Riga office also runs Exigen's operations in Moscow and St. Petersburg, as well as in Lithuania - through a Vilnius software firm that was acquired earlier this year.
While continuing to provide IBM with state-of-the-art software, Exigen's core business is now software programming for clients in the financial and telecommunication sectors, predominantly in the U.S. Urtans said the merger with Exigen Group was ideal, because it gives Latvian programmers access to markets that would be much harder to win had they continued on their own.
"It's easier if you go through a U.S. firm, because there's more trust from U.S. customers. There are also easier communications and easier sales," he said. The approach has worked well, even through the recent downturn in the global IT business. Exigen Latvia posted net turnover of 4.9 million lats (7.7 million euros) in 2001, compared with 4.1 million lats in 2000. Ninety-three percent of last year's turnover consisted of sales to the U.S. 

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TRANSPORT

Latvian delegation satisfied with Russian road haulage concessions in Moscow

The Latvian delegation is satisfied with the results of talks in Moscow where it discussed the problems of road hauliers and drivers. Next year the number of permits issued to Latvian hauliers will be considerably increased, and there are hopes that finally the problems of crossing the Latvian-Russian border will be solved. 
Aivars Tiltins of Latvian Radio reported: The delegation from the Latvian Ministry of Transport went to Russia with the hope of agreeing on an increase in the number of free permits for cargo and passenger transit and travel to Russia, and of finally solving the border crossing problems, so that they need not stand for a long time in the queue at the border. Our road hauliers have always had problems with Russia, because the number of permits issued has been insufficient and the carrying companies have even been threatened with bankruptcy because of it. The results of the talks show that progress has begun in the two countries' relations. 
Talis Straume, director of the road transport department at the Ministry of Transport said: "I have to say that the talks were very successful, even unexpectedly successful, because on the whole our initial quota was increased over what it was at the beginning of this year by 30 per cent; if we started this year with 12,000 permits, we are starting next year with 16,000 permits, so, well, I think we can look at next year with optimism."
For mutual transit, Latvia suggested that the Russian representatives use Latvian ports more, and this proposal got support. The bilateral talks also touched on the border crossing issue. For example, at the Terehova crossing point, queues of vehicles several kilometres long are not uncommon, and five or six days are need to cross the border...

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