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Friday 18.08.2017 | Name days: Liene, Helēna, Elena, Ellena, Liena

Economic Diary. Caution: doors opening

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Author: Panthermedia/SCANPIXWe are almost there. This week, the European Commission (EC) and the European Central Bank (ECB) have confirmed that Latvia is fully ready to join Eurozone on January 1, 2014. And even though the final decision regarding the currency of Latvia is still expected to be made by EU Finance Ministers, it is unlikely that it will conceptually differ from the opinion of EC an ECB.

A signal for the region

June 5, 2013 could very much end up becoming part of Latvia’s history as the day the report about Latvia’s completion of all of the convergence criteria was unveiled.

“Latvia’s joining of Eurozone will become a strong signal for the region, for the monetary union and global markets. This step will underline the fact that a stable policy yields actual results and reforms pay for themselves in the end”, – European Commissioner for Economic and Monetary Affairs Olli Rehn said.

Latvian Finance Minister Andris Vilks has noted that Latvia stands first in the EU in terms of Maastricht criteria completion: “We need to keep to a pragmatic approach, avoid giving into populism and maintain a stable fiscal policy.”

In spite of the exploratory indexes, the ECB warns about serious inflation pressure Latvia could face in the future.

The final decision about Latvia’s joining of Eurozone will made on the EU Ministers Council meeting on July 7.

The bubbles that are used to scare us

If one is to descend form the European heights to the “sinful land”, he can find many interesting things here. For example – the research of the Latvian State Land Service that was unveiled this week. It shows that wealthy CIS citizens contribute to the development of Latvia’s emerging real estate projects, but do not influence the price of the objects. This survey has demonstrated that the attacks of right wing powers on the investors visa programs, as part of which foreigners of third countries are offered Latvian residence permits, are baseless. Their favourite arguments is this: wealthy foreigners are enlarging the bubble, while locals are unable to afford an apartment or house because of their activity.

Authors of the survey state: the most notable effect of the rising foreign capital was the livening of the construction industry. “With the beginning of recession, many new projects were frozen. Foreigners’ money has allowed developers to continue the projects. It is possible that some of the new projects would never see the light of day if not for foreign investors”, – as stated in the document.

The aforementioned foreign interest is mostly concentrated in the segments where local residents are active the least: new expensive houses and apartments and exclusive housing in the centre of Riga and Jurmala. And even though the values are going up in some places, the state specialists do not see any signs for concern.

The bubbles that are used by political forces to frighten the country’s population are always part of short-term speculative transactions, the Lad Service concludes.

Every cloud has a silver lining

While some Saeima deputies rocking the boat, others are trying to introduce a constructive approach to things and solve important problems in the economy. Deputies of Unity and Reform Party have prepared amendments to the Insolvency Law. These amendments are called to ease the convergence of obligations of problematic companies in their shares.

The idea first appeared along with the legal protection measure for Liepājas metalurgs. The goal of the planned amendments is to allow creditors of the company that is undergoing legal protection to reduce its main capital (up until now, they could only increase it).

According to the authors of the amendments, the problem of current regulation is that it significantly reduces the ability to use this helpful instrument in resolving financial difficulties. Seeing as how the situation at LM is getting out of hand by the minute, the terms of preparing amendments are quite short: the draft of the document is due to be reviewed by the working group next Monday.

At least the ITs are doing well

Meanwhile, as part of a trade mission, Latvian IT companies have departed for the Silicon Valley in California this week. The event is organized by the Latvian Investment and Development Agency in cooperation with StartupLatvia. This is the second visit of Latvian hightech start-ups to USA in 2013. The first one was carried out this winter and was quite successful: negotiations with potential American investors are ongoing.

Five Latvian IT companies have departed for USA: TWA RIGA, Arcana, Riga’s branch of Froont, 1LIFE and the Riga International School of Economics and Business Administration.

As part of the mission, Latvian entrepreneurs will learn of the style and specifics of the business culture of the Silicon Valley. They also plan to meet with representatives of large corporations, including Google and Skype.


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