Books on Latvia
Update No: 286- (28/10/04)
There are 60 parties in Latvia and there is always only coalition government.
Moreover, the leading party is nearly always less than a year old when it
assumes office, such as Einar Repse's New Era now leading the government,
although he is no longer the prime minister.
What really matters in Latvia is who is running the economy and the one job that
really counts is the chairmanship of the central bank, the post he held for most
of the 1990s. It gave him an inclination for a dictatorial style that made him
unpopular with his coalition partners. Hence his forced resignation last year
and his replacement by the more emollient Premier Indulis Emsis.
But the rising power is held by the multinationals coming to town.
Manufacturing companies come to Latvia
The European Union's 10 new member countries are attracting new manufacturing
companies from across Europe. Latvia, which has seen its fair share of foreign
investment since EU membership in May, has ambitions to become one of the most
appealing destinations for producers-exporters.
The Cabinet of Ministers in September approved an export development plan for
2005 - 2009. The main thrust of the plan is to give a boost to Latvian
manufacturers' competitive edge and to help them find new markets for their
products. To demonstrate the seriousness of the government's intentions, Prime
Minister Emsis on Sept. 24 even toured Lavijas Finieris, one of Latvia's leading
In one of the biggest manufacturing-related investments this year, the US
fibreboard company Jeld-Wen announced it would build a 40 million euro wood-
treatment facility in Latvia, which management ultimately chose over Spain. The
factory will produce fibreboard skins, 95 percent of which will be exported for
use in Jeld-Wen factories across Europe. Latvia's membership in the EU
significantly influenced the company's decision to stay in the Baltic country,
says Ralfs Dakters, a client executive in the Latvian Investment and Development
Agency's investment and trade promotion division.
"The first attraction for Jeld-Wen was EU criteria. They needed to build in
the EU, as they will be exporting to the other Jeld-Wen factories in
Europe," says Dakters. "The second attraction was the low corporate
income tax, which is only 15 percent in Latvia. The third attraction was the
natural resources. The type of wood fibre here suited their needs, plus it was
of a high quality and quantity." Jeld-Wen, which was established in Latvia
in 1994, is also aware of the country's cost-effective labour benefits. The
average gross monthly wage in Latvia is approximately 200 lats (300 euros).
In another high-profile project, Germany's AKG, a manufacturer of vehicle
radiators, teamed up with Russian automotive producer ZIL, to invest 20 million
euros into a new factory that will create 250 jobs in Jelgava over the next
As Dakters explains, "With accession to the EU - coupled with Latvia's
geography of having the European market on the left and the CIS market on the
right - Latvia has become a 'one-stop shop' for foreign investors." Indeed,
Latvia ranks among the top 10 countries internationally in terms of business
start-up time and length of bankruptcy procedures. According to a World Bank
report, one can register a business in Latvia within two business days.
"We now have a good quality of projects coming into Latvia from across the
globe," says Dakters.
Latvia has access to a consumer market of over 660 million, and its abundance of
sea and road transport links provides easy accessibility to surrounding
countries - hence, the importance of the government's manufacturing development
programme. "The government is now showing their intention to be an
investment-friendly country. Not just saying it, but actually doing it,"
Through LIDA, the government has proved its commitment to foreign investors,
offering not only start-up help, but also support after the investment's
implementation. Foreign representatives of LIDA situated in France, Germany,
Russia, Kazakhstan, the Netherlands, U.K. and Sweden - with offices in Norway
and Denmark - testify to Latvia's intention of attracting foreign manufacturers.
Investors also have the opportunity to enter the state support programme, which
offers grants for entrepreneurship, participation in international exhibitions,
modernization, the development of new products, and for increasing the
qualifications of employees.
LIDA is currently accepting applications for EU grants. "The grants which
are being offered at the moment are an additional incentive for foreign
investors," Dakters says. "Many grants are geared specifically for
manufacturing companies. We definitely hope to attract more manufacturers from
Fitch affirms Latvia's rating
Fitch Ratings recently affirmed Latvia's ratings at Long-term foreign currency
A- (A minus) with Positive Outlook and Long-term local currency A with Stable
Outlook, New Europe reported.
The Short-term foreign currency rating is affirmed at F2 and the Country Ceiling
at A+, the rating agency said in a press release. Latvia's sovereign ratings
continued to be supported by strong economic growth and an established history
of structural reforms and policy discipline.
Public finances are a considerable support to the ratings and, despite frequent
changes of government, are backed by a broadly-based consensus that has
successfully ensured fiscal restraint. The general government deficit has been
below 3.0% of GDP since the beginning of the decade. Its gross general
government debt-to-GDP is among the lowest of any sovereign rated by Fitch and
the public sector is a net external creditor. On the other hand, Fitch cautions
that the rapid pace of credit growth and strong demand growth in Latvia could
give rise to inflationary pressures. "Latvia was upgraded in July 2004
following the publication of its Convergence Programme for full EMU
participation, and our central scenario is for the country to adopt the Euro in
2007-2008," said David Heslam, Associate Director in Fitch's Sovereign
As Euro membership approaches and becomes more certain it will increasingly be
factored into Latvia's foreign currency ratings. Sovereign creditworthiness will
be increasingly dependent on the strength of public finances - a factor in
Latvia's favour, while large current account deficits and external debt will
become less of a credit constraint, other things being equal.
However, Fitch noted that Latvia's large current account deficits and the
continued rise in the external debt stock (on both a net and gross basis) remain
concerns. The recent pace of credit growth is also a source of concern, which is
partly sustaining the current account deficit, and has the potential to fuel
inflationary pressures, the main risk to Latvia's timetable to adopting the
Euro. Such current account deficits have been sustained for some time and may be
consistent with Latvia's stage of development - reflecting strong inflows of
investment-related goods and a catch-up process in the expansion of the domestic
financial sector and consumption. Nevertheless, prolonged current account
imbalances raise a question over debt sustainability, particularly as the
financing mix has deteriorated since the sharp widening of the deficit in 1998.
Net equity FDI inflows covered less than a fifth of the current account deficit
in 2003, increasing Latvia's reliance on foreign borrowing to bridge the
savings-investment gap. Despite their stability through past crises, dependence
on non-resident bank deposits to fill the gap is also a potential weakness, as
is growing foreign currency borrowing by households, which may lack the natural
currency hedge of companies involved in trade. A prolonged continuation of these
trends is unsustainable from a macroeconomic balance viewpoint, as increasing
liabilities leave the economy open to sudden slowdowns in growth and exchange
and interest rate shocks; a rise in debt servicing could itself dampen future
Baltics prioritise road, rail links
A trilateral agreement by Lithuania, Latvia and Estonia placed at the top of the
agenda the improvement of road and rail infrastructure connecting the Baltic
states and western Europe, Deutsche Presse-Agentur (dpa) reported.
"The improvement of the infrastructure is a precondition of our full
integration in Europe," Lithuanian Prime Minister, Algirdas Brazauskas,
said in Riga after a meeting with his counterparts, Indulis Emsis (Latvia) and
Juhan Parts (Estonia). While parts of the western network between Berlin and
Helsinki are reachable "via the Baltic" other sections are in need of
renewal, he said. "In the medium-term we are aiming for a 'modern
motorway,'" Brazauksas said. The route is an important trade route between
western and eastern Europe and Finland. The prime ministers' discussion also
focused on continuing the "Rail Baltic" project. So far, different
track widths are slowing down railway traffic but the support of the European
Union will be required to improve such a scheme, they said.
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