Latvia PM confident of sustained recovery
What measures are you taking in dealing with the economic crisis?
Latvia has indeed suffered deeply from the financial and economic crisis, and between 2008 and 2010 Latvia's gross domestic product fell by some 25 per cent. To ensure the solvency of the state, we had to apply for International Monetary Fund and European Commission loans but right now we have successfully managed to ensure the financial stability of the country and to reduce the budget deficit to manageable levels.
This year's budget deficit is planned to be 4.2 per cent of GDP according to ESA95 methodology – ESA95 is the harmonised European methodology for the compilation of national accounts. If we are to take into account measures to combat shadow economies then it is down to 3.7 per cent of GDP, clearly fulfilling the Maastricht deficit criteria, and next year a budget deficit below 3% is clearly within reach.
While dealing with all the fiscal austerity measures and restabilising financial stability, we also try to facilitate production and export orientated industries through the support of European Union funds, so we have reallocated quite substantially and reduced the administrative burden to a large extent, and really managed to reshuffle the economy to a structure that is more sustainable.
Last year for example, industrial production growth was 13 per cent and so far for this year, it is 14 per cent. Export growth last year was 30 per cent and in the first quarter of this year it was 41 per cent export growth, so we see the structure of the economy is becoming more sustainable.
From late 2008 we had to apply for an international loan from the EC and the IMF. It took more or less a year to restore financial stability between late 2008 and 2009 and in the 2010 budget we could say that we regained some degree of confidence of financial markets. Our credit ratings started to improve and immediately in 2010 we also felt that we were coming back to economic growth.
Our experience of financial stability is that it is a precondition for economic growth, so it is important to act quickly and re-establish financial stability, something which is important for Greece who are one year into this international loan programme and have not managed to restore financial stability.
What opportunities are there in Latvia doing business with Brazil and the United States?
The United States is Latvia's strategic partner and we have excellent cooperation between our governments, but nevertheless in terms of cooperation between businesses there is still great potential, so we see prospective sectors for US investments for example in logistics, industrial production, machinery, energy and IT.
There is also some potential for tourism development because so far Latvia is the US's 16th largest trading partner for exports and the 23rd for imports. There is a large potential to develop economic cooperation so in my forthcoming visit I will have a business delegation with me who will focus on that.
In regards to Brazil, we are really interested in becoming a transit and logistics centre in the Baltics for the export of Brazilian goods to Commonwealth of Independent States markets and also driving Brazilian investment.
What are your priorities in dealing with corruption?
In regards to fighting corruption and reducing money oligarchs in the Baltics, we have already been dealing with this politically since 2002 when a new era came to politics and it is now one of the priorities of unity. During those last years, we made quite a few improvements, for example the mandatory disclosure of the nation's political parties or capping campaign expenditure before elections and a number of other things.
We are working to improve public procurement procedures to ensure a level playing field for competitors, improving transparency, reducing corruption risks and also dealing with many other issues. We are having an extraordinary parliamentary election in September, so the outcome of this will be quite important because the size and so called representation of parties in parliament would decrease quite substantially.
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As an American business man with over 40 years international experience, I am having to disagree quite strongly with most of the Prime Minister's point of view and analysis of the situation in Latvia today. The one point that I fully agree on is that the economy has suffered greatly and small businesses in Latvia are struggling to survive and many are just not making it.
The Prime Minister in has budget cutting frenzy (perfect word to describe) has used only basic bottom line budget cutting techniques without any serious or perhaps any thought on how to run the government smarter, leaner and with significiently less waste and corruption.
The current government in my opinion has tackled the monetary crisis without clear thought and proper data to make their decision on "how to cut" the budget. All they have accomplished is to get rid of salary dollars and are still wasting "good money" on bad and defective procedures, processes and policies.
The government "hacks" in their budget cutting have done nothing to make it easier for a new small business to be started and how VAT/PVN taxes are processed, reported and paid. They have simply "hacked" away at the budget items using ratios and percentages without listening to the people, the customers and the businesses that have to live and work in the system that the government creates.
The tax revenue department is still operating the same today as they have done for years. It one of the most inefficient operations I have seen in 40 years. The current VID PVN tax electronic system and data base is far too complex and difficult to use, its no wonder even experienced Latvian accounts don't want to use it. Many times I have to help my 30+ year experienced account use the VID online system. The only reason I can do this is my 40 plus years of working with the concept of online tax systems in the USA.
My USA-based small business can process the data input; calculate the tax due and PAY the taxes online to the State of California in only five minutes. Then ask you to complete a customer satisfaction survey on how to make the process easier at the end. Here in Latvia, the tax office does not even answer their published telephone help lines when you call. The amount of effort to start a new business is plain and simply unbelievable and much more complex than in neighboring country of Estonia - it's a documented fact.
Clients in the USA and abroad don't want to purchase from a small Latvian company as they are fearful of fraud at all levels, which is still happening (recent internet scam worth millions).
We have had to move all our credit card processing back to our USA company and then make intercompany transfers to sell Latvian products to our North American clients. With regards to the tourism sector, Yes, the summer will see a peak of inbound tourists who arrive by cruise ships or have made their hotel reservations using out of country Internet reservation and payment systems; therefore, not all the revenue even hits the country.
Latvia is not a natural tourist destination as it lacks a large number of unique and special tourism objects to promote. The objects there are to promote are not well understood and the tourist offices lack the abilites to do agress and creative marketing.
Also, recent analysis of the tourists recently is that they are very frugal and are not "high rollers" in the shops and restaurants. The cruise ship arrivals, walk to the old city, walk around for a few hours on their own - maybe have a cup of tea - and then walk back to the cruise ship to eat their prepaid meals. There is not a lot of "trickle down" to the locals.
It is also a know and documented fact that shy Latvians hesitate at every opportunity to communicate. In order for the tourism effort to grow and prosper it will require a lot of communication and cooperation between all the players (hotels, tourist offices, guides, bus companies, car rental agencies, etc).
I have several documented cases where the local state and city tourism offices have not bothered to respond to multiple requests to co-operate and communicate new ideas on marketing efforts. Its not that they review and say no - they simply refrain to discuss opportunities.
To make it worse, foreigners have bought up most of the prosperous companies and these same foreign companies receive the huge revenues from the sale of their products and the sale of grocery staples from the poor (and getting poorer) locals. Latvian assets are just disappearing so to speak.
So if the new president is already a millionaire; has friends near the sea and in the mountains; and associates with airline executives - I wonder what will be his incentive to make the tough choices to make the mid level folks more prosperous. The poor retired people will have to get much better on begging in the streets.
In addition, I was on a tram Friday that the controllers removed half the riders from my car - as they had not bought a ticket. The average person just does not have enough money for basic living any more - and appears to be declining even more each month.
I have heard the talk about tackling corruption for the 11 years I have been in Latvia and nothing has improved.
As one recent news story stated, all what has happened recently is not positive for the "good people" in Latvia. In conclusion, Latvia needs to stop "hacking" away at the problem and start using some well documented in the world process improvement methodology to simplify the government. And the improvement starts by "listening to the customer" That's my opinion, too.
Mike Johnson - Riga Latvia Patricia
There is one sentence in the article that I am finding quite interesting and would like to explore further. Also, it would be nice to hear more detailed comments from the PM on what he was thinking when he made this comment.
That sentence is: "There is also some potential for tourism development because so far Latvia is the US's 16th largest trading partner for exports and the 23rd for imports." My quick Internet search does not find data to support that statement for volume of exports and imports.
Yes in the past, Latvia exported a high volume of wooden doors and windows to USA and Canada, but that market went away when the housing starts stopped. The companies making such doors and windows - if not already, they are almost out of business now.
So what are all these products flowing back and forth? Concerning the tourism aspects of the statement, The USA has many Latvians from the distant past and the recent past living there. Yes, they make trips back to Latvia to see family and friends, but they are not huge tourism spenders in the process.
Most other Americans have never heard of the country of Latvia and it would be one of their bottom tier choices to spend for a huge airplane ticket. As Latvia is not one of the "wonders of the world" and with most Americans not even knowing about the destination, the PM has a huge uphill struggle to increase tourism revenue from the Americans.
W George Walker - Riga, Latvia
