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latvia

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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: 258 - (27/06/02)

The Latvians are debating their EU aspirations, aware that Estonia is now certain to join. Some issues are still not yet settled, but accession in the first wave has been agreed as achievable.
It is not clear that this is true for Latvia, which is poorer and has further to go in reform. It also has a far larger population of local Russians.

The Irish model
President Vaira Vike - Freiberga went to Dublin recently and spoke to Irish President, Bertie Ahern, of Ireland's highly successful experience of EU membership. From being one of Europe's poorer countries on entry in 1973, it has become one of its most prosperous, nearly thirty years on. The key has been a massive surge in foreign direct investment (FDI), that now accounts for two thirds of Irish exports.

On the mend
Latvia needs to do the same, being until recently the 10th poorest country in Europe. It has been making strides forward all the same. Its GDP has surged ahead in recent years, its growth rate being 6.6% in 2000 and 7.6% in 2001, while its rate this year should be 5.0%. The role of FDI has been not unimportant, coming from the EU, the US, Canada and Russia. FDI was US$398m in 2000 and US$300m in 2001. It is estimated to reach US$250m in 2002.
The total stock of FDI is now in excess of US$4bn, a very good amount for a country of only two and a half million, of whom 34% are ethnic Russians. A new surge of FDI can be expected on EU admission and then the Irish story could be repeated. As a sort of Hong Kong of the North, Latvia is a natural gateway to the Russian market beyond, just as it is a favourite outlet for Russian oil and goods westwards.

Contretemps with Russia
Riga has blotted its copy book with Moscow by abolishing its policy of a visa-free regime for the transit of Russians through its territory. This was done without notification and could cause disruption to holiday traffic in the Baltic region.
The Latvians have a history of provoking Russia with pin-pricks, such as a tight language requirement for citizenship, since relaxed. The Latvians and Russians have yet to learn to live harmoniously together. Greater prosperity in the EU should eventually help here.

New political forces 
It looks as if a political upheaval 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 last December when he resigned to from 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 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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EU ACCESSION

EU tax accession chapter closed with Latvia


One of Latvia's key European Union negotiation chapters, "Tax Policy," was closed in Brussels on 11th June, LETA News Agency has reported.
Minister of Finance Gundars Berzins told LETA that only one negotiation chapter that the Finance Ministry is responsible for, "Financial Control," has not been closed as yet. It is the last chapter that is to be discussed during negotiations, and no candidate country has closed this chapter as yet. After active work, Latvia has closed most EU accession negotiation chapters - 27 out of 31 chapters being closed.
According to Berzins, closing the "Tax Policy" chapter proves that Latvia's tax policy has been harmonised with international standards...

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FOREIGN LOANS

Latvia to gain EIB loan to upgrade power plant


The European Investment Bank (EIB) is lending 80m Euros for upgrading power generation and distribution in Latvia. The loan to Latvia's power company SJSC Latvenergo will help upgrade a combined heat and power plant in Riga and transmission and distribution networks throughout Latvia, New Europe has reported.
The long-term finance contract between the state owned joint stock company Latvenergo and the European Investment Bank (EIB) was signed in Luxembourg. The investments will allow Latvenergo to improve reliability of power supply by installing a modern combined-cycle gas turbine and by renewing some 3000 substations and 4000km of overhead lines.
Commenting on the loan, EIB Vice President Wolfgang Roth, said: Reliable energy supply is important for proper economic development. The substitution of heavy fuel oil by gas will also have significant environmental effects as it will help reduce pollution in Riga and this should be seen as a further advantage in addition to better supplies of heat and power in the capital. But business and household consumers throughout Latvia will benefit from the growing reliability of power supplies following the completion of investments in generation and distribution capacity."
The EIB is the European Union's long-term financing arm and has provided nearly 300m Euros for projects in Latvia since 1994.

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TELECOMMUNICATIONS

Sweden's RSL COM, Terraflex eye Latvian telecom market


Swedish telecoms companies RSL COM and Terraflex are ready to begin offering fixed-line services in Latvia. Bizness & Baltija (B&B) quoted the Swedish Export Council commerce attaché, Stig Friberg, as saying the Baltic region is "super important" to Swedish companies. Interest in Latvia's telecoms market is high because most of the Western markets have stabilised, whilst the Baltic region is just beginning to grow, he added.
The Scandinavians are ready not just to sell equipment to Latvia's new operators, but also to be active in providing services, B&B reported. Friberg said both Terraflex, which is offering the lowest tariffs in Sweden, and RSL COM, one of the country's largest alternative operators, are very interested in providing fixed-line services in Latvia.
"At present, telecommunications services are very expensive in Latvia, especially for international calls," the paper quoted Friberg as saying. "Tariffs are tangibly higher in Latvia compared to other countries. In Sweden, people do not think about tariffs when they speak on the phone," he said.
Friberg said the Swedish companies want to promote the cheaper tariffs they would be able to offer to consumers and to businesses in Latvia. He ruled out concerns that the Swedish companies in Latvia could unite to create a monopoly. "These are independent players who will each hold its market share and consumers will get better quality for a better price as a result," Friberg said. Latvia's telecoms company, Lattelekom, ends its fixed-line monopoly at the start of next year. Tele2 also has a mobile operator in Latvia, while merging companies Sonera and Telia both hold shares in Latvijas Mobilais Telefons. Sonera's Tilts Communications is also in a dispute over its obligations to the state as 49% owner of Lattelekom.

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