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LATVIA


 

 

Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 9,671 8,406 7,500 94
         
GNI per capita
 US $ 4,070 3,480 3,230 79
Ranking is given out of 208 nations - (data from the World Bank)

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




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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