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: 272- (29/08/03)
The EU referendum
The Latvians are contemplating a big departure in joining up with the EU. There is a referendum on the subject. It is due on September 20th. The Latvian Socialist Party is advising people to reject EU membership.
The two heavyweights in Latvian politics have combined forces to urge citizens to vote for EU accession. They wanted to make clear to the people that it was a long-term decision and should not be influenced by the immediate concerns of the 2004 budget or the popularity of the government.
The two in question are the recently re-elected president, Vaira Vike-Frieberga and the Prime Minister Einars Repse, for long the Central bank chief. Both see the issue as vital to Latvia's future. Repse said the upcoming referendum was of major importance," whether Latvia is in the family of modern, developed Western European countries, or remains in the group of backward states oriented towards the East."
The last remark is a not so veiled reference to neighbouring Belarus which has a dictator more Russophile than the Russians. Repse must feel the utmost disdain for Alexander Lukashenka and is making it clear to the voters that their fate is in their own hands -Russia or the West.
Even the local Russians, 33% of the population look Westwards these days, otherwise they wouldn't remain in Latvia. The referendum is likely to be won.
Latvia postpones Eurobond issue from 2003 to 2004
Latvia has postponed a 10-year Eurobond issue from this year until the start of 2004, BNS News Agency quoted a source in the finance ministry as saying. The source said that the changes in the plan are connected to the fact that in the first half of this year the state budget received more revenue than planned and the fact that the borrowing rates on the domestic market are very low. The sources said that the government plans to borrow 128m lats on the domestic market by the end of the year, New Europe has reported.
In particular, in August, September and December it is planned to place one issue each of one-year bonds amounting to 12m lats each. In October and December it is planned to place six-month issues of up to 6m lats each. In addition, in September it is planned to hold an auction to place 10-year bonds amounting to up to 15m lats, in October up to 20m lats and also auctions to place three-year bonds, one in August and two in November, of 15m lats each. By the end of the year a total of 62m lats will be spent on redeeming government securities
Latvia has already placed 125m lats in securities on the domestic market this year. Redemption of securities since the start of the year has amounted to 52m lats. It is planned that state debt will amount to 899m lats at the end of 2003, including 428m lats in domestic debt.
Latvia plans to place 10-year Eurobonds amounting to between 300m Euro and 400m. It is planned to use the funds received to redeem five-year Eurobonds in May 2004 and for other purposes as well.
Only a quarter of Latvia's co-financing of EU-funded projects has been agreed
At the government meeting on 12th August only partial agreement was reached on the distribution of the 50m lats envisaged for co-financing with funds from the European Union (EU). So far it is clear how one quarter of this sum will be divided. Ministers have yet to agree on how the rest of the money will be allocated, and they must resolve the matter of where to find money to implement the planned projects, because only then will it be possible to receive subsidies from EU funds, Diena web site has reported.
Regardless of the fact that the ministries have requested 89.38m lats of the national budget for co-financing with EU funds next year, and want to receive a further 152.9m lats as preliminary financing in order to secure the intended projects (only after a project recommended for EU funding is implemented with its own money is the decreed amount of the EU subsidy paid back), the Ministry of Finance has only submitted proposals to the government for a previously agreed sum allocated for EU co-financing - 50m lats. Moreover the ministry is recommending some of it for co-financing projects, and finding the funds necessary for preliminary payments from within the ministries' own budgets.
The ministries have already started seeking these funds; for example the Ministry of Agriculture is planning to cover some of its EU requirements for next year from money intended for agricultural subsidies, because next year there will be limited opportunities for paying out the national subsidies.
"The money allocated by EU funds for 2004 can be spent over three years. They will not go to waste. I don't think all the money can be obtained in one year. This is a third of all the money allocated that we are predicting as real expenditure," Diena was told by Minister of Finance Valdis Dombrovskis.
It is clear already how 12.5m lats of the planned 50 millions will be spent: 5.27m lats will be allocated for co-financing of PHARE projects, 4m lats for projects that are financed from the ISPA fund for transport and environmental development, while 3.22m lats will go on projects co-financed by the Cohesion Fund, from which, after Latvia joins the EU, transport and environmental projects will be funded (taking over ISPA projects).
Leasing in Latvia gets further EBRD, EC support
Leasing is increasingly important for entrepreneurs in the European Union accession countries, making it easier for them to acquire new equipment and services, New Europe has reported. To encourage these activities, the EBRD is extending a 15m Euro loan to SIA Unilizings, the leasing subsidiary of Latvijas Unibanka, one of Latvia's leading banks. The funds will enable more micro and small enterprises to undertake leases. The European Commission will contribute 150,000 Euro for technical cooperation and up to a further 1.9m Euro depending on the number of leases made by Unilizings.
The deal marks a continuation of close cooperation between the Unibanka group and the EBRD. A 10m Euro credit line from small and medium-sized enterprises (MSEs) was signed in 2000, followed by a similar credit line in 2001. Commenting on the decision, Andris Berzins, president of Unibanka, said "By signing a third agreement we prove ourselves as professional partners in using the financial assets of the European Union. We are also proceeding with special funding for micro and small businesses, this time offering leasing as a financial instrument, for which the demand in Latvia is on a steep rise. SIA Unilizings has gathered great experience in the local leasing market and will continue to support the growth of Latvia's economy."
The EBRD's loan comes under the fourth extension of the EU/EBRD SME Facility to support the development and growth of entrepreneurs by facilitating their access to finance. The bank has signed commitments of 525m Euro of which approximately 420m Euro has been disbursed via 16,500 loans. Recent months have witnessed an upsurge in leasing in the accession countries. The EBRD sees expansion of leasing activities as one of its priorities under its efforts to promote the development of SMEs.
Since its launch in 1999, the EC has committed 241m Euro to the SME Facility under the Phare Programme, including 130m Euro of grant co-financing in cooperation with the EBRD. The Phare programme is one of the three pre-accession instruments financed by the EC to assist the candidate countries of central and eastern Europe in their preparations for joining the European Union.
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