In Latvia

THE INVESTMENT CLIMATE IN LATVIA

Freedom Rank 38 (68.3%) in US Heritage Foundation „Index of Economic Freedom” 2008:

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Experts of the Ministry of Economics have prepared the 26th Report on the Economic Development of Latvia. The first Report was published in September 1994 and the following Reports since 1995 were published traditionally twice a year in June and December. The present Report, just like the previous ones, provides evaluation of economic situation in Latvia and progress of reforms as well as offers economic development forecasts. Rapid economic growth continues protractedly in Latvia.

GDP has increased by 10.4% on average annually since 2004 and went up even faster in 2006 (by 11.9%). Also 2007 started successfully for Latvian economy. GDP in the 1^stquarter grew by 11.2% in comparison with the respective period of the previous year. Fast GDP growth certainly reduces our country’s backwardness from the old EU member states and I am convinced that economic growth in Latvia will remain at a high level also in the next years. One of the main risks for economic development in Latvia is constituted by high inflation rate and large current account deficit due to high domestic demand.

Inflation rate of Latvia is determined by many factors that sometimes are mutually unrelated, among them structural changes pertaining to EU membership, rise of world prices for energy resources, changes of administratively regulated prices, etc. However, the most essential factor is rapidly growing domestic demand stimulated both by fast increase of wages and by rapidly growing volume of crediting. At the same time, it should be noted that inflation has not been an essential obstacle to fast growth up to now. However, the high inflation rate remaining already for three years may pose a threat to stability and further growth of Latvian economy in the current conditions. That is why Latvian government pays special attention to solution of this problem and, in March 2007, the Cabinet of Ministers approved the action plan to curb inflation, which is oriented to reduction of the domestic demand.

Priority for work of the Ministry of Economics is promotion of business activity and knowledge-based economy. By implementing the Action Plan for Improvement of Business Environment, Latvia improves its global positions every year. In the World Bank survey “Doing Business in 2007: How to reform”, Latvian business environment takes the 24^th place among 175 countries, which is by two positions higher in comparison with the previous year.

In order to raise competitiveness of Latvia, the Cabinet of Ministers has approved the Entrepreneurship Competitiveness and Innovation Promotion Programme for 2007–2013. The programme defines specific measures for improvement of business environment, fostering access to finances, development of new entrepreneurship initiatives and promotion of their competitiveness, encouraging awareness of society about the role of innovation in promotion of competitiveness, promotion of co-operation of industrial, educational and scientific sectors, transfer and commercialisation of knowledge, and fostering development of industries and rise of their productivity. Funding in the amount of LVL 464 million is planned for implementation of these measures, int. al., attracting LVL 420 million from the EU Structural Funds. I want to stress that currently, working out criteria for use of EU funds, more and more attention is paid to the regional aspect.

Among main challenges for the Ministry of Economics in the next years will be implementation of energy development policy in order to raise safety of energy supply and reduce dependence on imported energy resources.

For achievement of the set goals, we will continue the dialogue with our social partners (entrepreneurs and non-governmental organisations representing them). This is the only way how to ensure sustainable growth in the long-term perspective.

In the Report, you will find information on both the development of main economic and social indicators, growth of national economy sectors, external economic environment, and government’s economic policy for promotion of growth and employment, foreign trade policy, utilisation of the EU Structural Funds and the Cohesion Fund, innovative and entrepreneurial policy and other economic reforms. In the conclusion, the authors of the Report give recommendations for improvement of the national economic policy.

The Cabinet of Ministers has not assessed all issues addressed in the Report hence many conclusions on the economic development of the country and proposals for further action reflect purely the opinion of experts of the Ministry of Economics.

Ministry of Economics of Republic of Latvia

BusinessmanTime.com / Marcis Skadmanis