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Sunday 20.08.2017 | Name days: Bernhards, Boriss

Economic Diary. Big money give-away season

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RU9 areas of high priority are planned to be funded as part of the European equality policy in the next 7 years in Latvia. Among those directions are the initiatives to develop small and medium business, technology, environmental protection, employment and other important aspects. The list has been compiled in a form of an official document. This documents has been submitted for review by state secretaries.

Enough for everyone

All European funds that are involved in equalisation policy will allocate EUR 4.4 billion for Latvia throughout 2014-2020. The Finance Ministry sent a report to the state secretaries last week. The plan includes activities that will be funded by this money. 29.5% of the amount (LVL 1.35 billion) is proposed to be used for long-term transport development. This includes the development of Riga International airport, the development of port and railway infrastructure and maintenance of state roads.

Another important development direction is the support of small and medium businesses. Raising the competitiveness of businesses is a direction for development in its own right. A total of EUR 368.94 million is planned to be allocated for this. Municipalities will be allocated EUR 252.28 million for the following goals: 800 ha of reconstructed or created industrial areas, 9,000 preserved or created jobs, dozens of attracted private investors.

The Finance Ministry had previously sent the same list of priorities to the European Commission. This was done unofficially, so that all conflicting matters would be resolved when it is time to sign official agreements with Brussels. There are, of course, conflicting matters: the EU authorities believe Latvia should reduce the share planned to be allocated for roads and allocate more money for other priorities.

How to compensate losses?

Latvia seems to give with one hand and take with the other one. The head of the Finance Ministry Andris Vilks mentioned this week that the question regarding the possibility of increasing VAT could be discussed again. The minister’s idea is simple: if we stick to the notion that PIT should be 20% and social insurance fees are to be reduced, this reduction of revenue should be compensated somehow. The ministry believes this compensation will be provided at the expense of the reduction of the shadow economy. Nevertheless, this does not mean VAT will be increased in 2014. The minister believes this issue should be discussed as part of budget planning for 2015.

VAT has been changed many times throughout the history of modern Latvia. The rate of this tax was recalculated four times in the second half of the 2000s.

Paying the debts of others

It should be said, however, that the state of Latvia is prepared for sacrifices as well. But not for all. For many the news about Latvia paying the debt of Liepājas metalurgs (LVL 47.414 million) to the Italian UniCredit S.p.A. came as a shock. Why should the state pay the debts of a private company? And why aren’t other entrepreneurs eligible for this kind of support?

The Latvian Cabinet of Ministers reviewed the report regarding the state of Liepājas metalurgs this week. Karlis Krasting, consultant of Prudentia, told the government that the plant is likely to function with profit in the near future. LM will require funds for the first two months, however. As soon as the solvency restoration plan is complete, it will be known who will provide the money.

Everything indicates that the future of LM depends on the creditors’ decisions, not shareholders. The Finance Ministry hopes that a good and sustainable plan for legal defence will allow the company to restore function and reach an agreement regarding the payment of debts.

As for the co-owners of the plant, they continue to gradually lose control over the enterprise. The largest shareholder of LM Sergei Zakharin (49%) was not re-elected into the council this week. Guntis Vilnitis was elected in his place. Ilya Segal (21.03%) has left the Board of LM altogether. The State Police had previously prohibited Zakharin and Segal to take managing positions in LM due to the criminal proceedings initiated against them. Kirov Lipman (23.47%) has decided to leave the newly elected council because the last meeting was held without him.

Meanwhile, ex-finance minister Einars Repse claims the state has a good chance of getting out of the whole Liepaja situation with profits. He believes the money is not lost. All that needs to be done is take over the plant, reorganize it and sell to some investor. As simple as that.


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  1. Ilmars says:

    Re : Big Money Give Away Season
    As the eurozone goes down the economic gurgler ,and European citizens get pissed off with incompetent management , then we can expect more bullshit stories like this .Instead of public relations stunts like this , they would be better off sacking the head of the ECB , stopping the inflation first policies , and adopt the policies of the Americans that have proven to lower unemployment and improve the economy .

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    • Anonymous says:

      Yeah, no thanks. The last time American policies reduced unemployment and improved the country’s economy was during World War II. I think we all know the means by which the American government implemented these improvements…no thanks

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  2. Ilmars says:

    The last time American policies dropped unemployment is like right now. In the last 3 years , since the global financial crisis , the American unemployment rate has dropped from over 10% to 7.4% this month . In the same period , the eurozone unemployment rate has gone up from 8% to over 12% , including a disgraceful 40% youth unemployment rate. Go figure.

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