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Wednesday 23.08.2017 | Name days: Valgudis, Ralfs, Vitālijs
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Dombrovskis: crisis is over for average household

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Vyacheslavs Dombrovskis

In terms of whether Latvia has overcome the crisis, it is important from which aspect this issue is considered – the recession has ended for the average household, yet there are still many people who would perceive this statement as a joke, Vyacheslavs Dombrovskis, author of Zatlers Reform Party‘s economic platform, indicates in an interview to the news portal BNN.

Based on the theory that a recession occurs in a country when its GDP falls for two quarters in a row, it is also believed that the crisis is over when the GDP grows. So according to this theory, we can claim that the crisis has ended, because the GDP reflects what is happening in the national economy, Dombrovskis emphasizes.

He adds that growth has resumed for average businessmen, although there are still many companies facing recession. Looking at the national economic segments, there is two-speed economic development in Latvia. Export-oriented companies are expanding, while those focusing on domestic consumption are still struggling with an economic dip.

Dombrovskis believes that high unemployment also confirms that the crisis is not yet past, as there are still many people out of work, including those permanently unemployed.

It would only be possible to argue that the crisis is over for absolutely everyone if there is a natural unemployment rate – not more than about 6–8%, Dombrovskis says.

While Martins Bondars, former head of Latvijas Krājbanka, is confident that all the recipes for exiting the crisis Latvia is bragging about and describing in books is absolute nonsense.

«To put it mildly, the government’s claim that the crisis is over is not true. Inflation in Latvia is higher than in the eurozone. Also, trade deficit has remained negative and the lat has been overvalued. Moreover, Latvia has spent billions from the borrowed funds, thus boosting the government debt. Hundreds of thousands of people have left the country. The question is – what economic growth can Latvia expect in the long run, if such growth is always based on technology and people?» Bondars pointed out to the newspaper Delovijie Vesti.

Bondars proposes his own recipes for getting out of the downfall. In his view, Latvia has to understand whether it is capable of joining the eurozone in 2014, which would not be bad, since it would solve many issues. Also, unnecessary foreign exchange risks would be averted. I see that the Bank of Latvia is not prepared to use monetary regulation instruments – then why do we need our own currency? Basically, the Bank of Latvia is an organization merely carrying out the functions of a money-printing machine, Bondars says.

At the same time he is convinced that if Latvia fails to join the eurozone in 2014, it should stop «harassing» its residents and businesses, giving up a fixed exchange rate for the lat.

The ex-banker also offers another option. It is implementation of a stern and clear insolvency mechanism that would take up to one year, instead of 2– 3 years, thus enabling faster asset return in the economy.

He also proposes to secure the budget deficit at zero level and revise the state administration system, based on the fact that only 1.9 million people are currently living in Latvia, instead of the previous 2.3 million.

Overall, Bondars is quite skeptical about the Prime Minister Valdis Dombrovskis’ book, which describes how the Latvian government tackled the crisis. No one in such renowned institutions as Cambridge or Harvard refers to Latvia as a country with outstanding abilities in crisis management. We ourselves are writing textbooks and quoting them. I know only one similar country to do so – the USSR. It also claimed to know everything about a better life, and where is the USSR now? It collapsed as a stack of cards, Bondars notes.

Also shortly after the book came out, Dombrovskis admitted to the portal ir.lv that he had been skeptical about Latvia’s selected internal devaluation path right from the start.

The Prime Minister Valdis Dombrovskis and the well-known economist Anders Åslund’s book How Latvia Came Through the Financial Crisis (In Latvian – Kā Latvija pārvarēja finanšu krīzi) describes and analyzes the Latvian anti-crisis program, defends the decision to keep the lats exchange rate against the euro, as well as points to what other countries could learn from Latvia’s experience.


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