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Books on Latvia
REPUBLICAN REFERENCE
Area (sq.km)
64,589
Population
2,306,306
Principal
ethnic groups
Latvians 52.0%
Russians 34%
Belarusians 4.5%
Capital
Riga
Currency
Lats
President
Mrs Vaira
Vike-Freiberga
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Update No: 307 - (27/07/06)
Latvia, Kazakstan to boost political and economic ties
A new axis is forming between Astana and Riga. It is based primarily of course
on a strong common vested interest - oil.
Kazakstan has the stuff in abundance; Latvia has the largest oil terminal on the
Baltic Sea at Ventspils, one, moreover, comparatively free from corruption.
Kazakstan is keen to diversify its growing oil exports away from Russia,
although of course the oil pipelines from Kazakstan to Latvia all go across the
Russian Federation. The Kazak route to Europe lies through central and northern
Russia and Ventspils.
During a top-level meeting of Latvian President Vaira Vike-Freiberga, a natural
on the world stage by now, and Kazak leader Nursultan Nazarbayev, an even longer
veteran on the scene, on July 18 in Riga it was noted that Kazakstan and Latvia
intended to boost political cooperation as well.
Within the framework of negotiations the parties paid attention to the
development of intergovernmental and inter-parliamentary ties and the conduct of
consultations concerning both bilateral and international issues.
Both leaders stressed the significance of the Kazak-Latvian Intergovernmental
Commission for economic and scientific technical cooperation for prompt
decisions of current problems of an economic character.
President of Kazakstan and his Latvian colleague emphasized their countries had
a common attitude regarding key regional and international topics. The sides
think UN reform should be directed to consolidation of its central role in
international affairs, boosting its effectiveness, and to an improvement of the
organization's potential, taking into account new challenges and threats to
existing world order.
Implementation of this reform is to be based on the principle of consensus and
to reflect the interests of UN member countries, the joint statement of the
leaders reads.
As for the struggle against terrorism, Nursultan Nazarbayev and Vaira
Vike-Freiberga signified support for the efforts of the world community to fight
this phenomenon in all its forms and voiced readiness to consolidate cooperation
in this sphere.
Transit of Kazak oil via the Latvian corridor
Taking into account the multi-vector energy strategy of Kazakstan, the sides
noted the great attractions of the Latvian oil-transit corridor for the
transportation of Kazak petroleum to world markets, according to the joint
statement of Nazarbayev and Vike-Freiberga signed upon completion of the
meeting. This is the heart of the matter. How realistic it is depends on
Russia's attitude to enable delivery of Kazak oil through pipelines on its
territory.
But other economic benefits could accrue too from joint activities. Transport
and transit, agriculture, industry and realization of infrastructural projects
were singled out as the most promising areas for cooperation between Kazakstan
and Latvia.
The parties underlined also that it was crucial to develop contacts in the
sphere of tourism, culture, education, healthcare, small and medium business,
etc.
Bank of Latvia raises refinance rate; it warns of continued inflation amid
huge boom
In June Latvia's statistics office reported that first quarter economic growth
reached a staggering 13.1 percent, triggering fears that the nation's economy
has overheated and may even disrupt long-term development. The risk is great
that bottlenecks and an inflationary spiral will develop. The quarterly surge,
the highest since the country gained independence in 1991, was led by trade (up
17.7 per cent year-on-year), transport and communications (up 13.6 per cent),
manufacturing (12.7 per cent) and construction (17.5 per cent). In constant
prices, Latvia's GDP amounted to 1.85 billion lats (2.6 billion euro) at the end
of March.
Speaking of inflation, the president of the Bank of Latvia, Ilmars Rimsevics,
said any speculation about stabilization was premature. "The latest
inflation figures confirm our earlier concerns that the reduction in the first
months of this year might be short-term," he said. He said that after the
slight decrease in the first four months of the year inflation grew again in
May. It then fell again a little in June, but annual price growth still remains
high at 6.3 per cent, the highest in the European Union. The growth of prices
for services was very steep - from 5.6 per cent in May to 6.7 per cent in June.
"Such changes in the price dynamics require even greater attention in
following the inflation development trends," said Rimsevics, adding that
strong domestic demand still continues to have a serious effect on inflation.
Demand, he said, was bolstered also by growing wages and expanding lending.
The council of the Bank of Latvia on July 14, hardly surprisingly in the
circumstances, decided to raise the refinancing rate by 0.5 per cent to 4.5 per
cent " to reduce ongoing risks of macroeconomic stability and to facilitate
more balanced long-term economic development," Rimsevics, said.
Starting July 15, the bank's Lombard credit rate for loans of up to 10 days is
5.5 per cent; for loans from 11 to 20 days 6.5 per cent; and for loans from the
21st day 7.5 per cent. The bank's Lombard credit interest rates had remained
unchanged from Sept. 16, 2002.
The refinancing rate is one of the key interest rates set by the Bank of Latvia
and one of its few levers to control economic activity in the country.
Previously the refinancing rate was 4 per cent, which was set on Nov. 12, 2004.
Analysts downplayed the long-term effectiveness of the move. SEB Latvijas
Unibanka analyst Andris Vilks told the Baltic News Service that interbank market
rates would increase slightly but would probably return close to the current
level soon. "I don't think it will have any serious effect on lending or
cause the rates to grow," he said.
Hansabanka senior economist Liene Kule said that the bank's decision was meant
as a signal to the market that central bankers were determined to continue
cracking down on the lending boom. "I think that the market response to
this decision will be a growth of short-term interest rates in lats," she
said, adding that for commercial banks the repo rate is more important than the
refinancing rate.
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ECONOMIC GROWTH
Economic growth increases 13.1% in Q1
The statistics office reported recently that the first quarter economic growth
in Latvia reached a staggering 13.1 per cent and fears that the nation's economy
has overheated and may even disrupt long-term development. It has been reported
by the website www.baltictimes.com that the quarterly surge which is the highest
since the country gained independence in 1991, was led by trade (up 17.7 per
cent year-on-year), transport and communications (up 13.6 per cent),
manufacturing (12.7 per cent) and construction (17.5 per cent).
In constant prices, Latvia's GDP amounted to 1.85 billion lat (2.6 billion Euro)
at the end of March. Government officials immediately expressed concern over the
data, with a central bank spokesman saying "such explosive growth creates
risk for the balance of long-term development" of the state. Martins
Gravitis, spokesman for the Bank of Latvia, said that first-quarter growth was
expected to be robust approximately 10 per cent, but not that high. He further
added that the share of industries in Latvia that depend on domestic demand and
not on production is too large.
Independent analysts were also surprised by the figure. Parex Asset Management
chief analyst, Zigurds Vaikulis, pointed out the surprising growth of 18.5 per
cent of the so-called commercial services industry (transactions with real
estate, lease and other commercial operations), as compared to an average seven
percent in the previous years. Since the share of this industry in the overall
GDP structure is large, about 13 per cent, the high growth figure influenced the
total GDP growth.
The analyst said, "To tell the truth, it's no surprise that this sector is
overheating."
A senior analyst of Hansabanka, Liene Kule, said, "Although full
information about the income aspect of the structure of GDP is yet to be
released, there are indications that the growth has not been 'healthy' - that
is, the economic structure is no longer as well-balanced as it used to be."
She noted that in 2005 rapid growth was proportional in terms of domestic and
foreign demand but this year the balance has been lost. Since the start of this
year there has been a significant slowdown in exports, present growth is based
mainly on domestic consumption.
SEB Latvijas Unibanka analyst, Andris Vilks, warned of property prices and bank
lending. Vilks said, "The influx of large sums of capital in a short time
has fuelled Latvia's economy. For the time being, state institutions see only
commercial banks that are paying out loans in record amounts, but they close
their eyes on absurdities in the real estate market, new construction projects,
controlling the amount of cash in circulation and following the absorption of EU
funding."
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