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Friday 28.10.2016 | Name days: Ninona, Ņina, Antoņina, Oksana

Economic Diary of Latvia. Everyone is dancing, or sirtaki for the EU

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUIt would be unfortunate to start off with a trivial ‘We told you so’, but it seems there is no other way: on 16 July the Greek parliament approved the measures necessary for international creditors to permit the realization of a new bailout plan. This means Greece desperately wants to receive the EUR 86 billion, and Latvia will not be able to sit this one out.

Debates in the Greek parliament continued for more than four hours. In the end, 229 deputies out of 300 voted in favour of measures. With that, the Greek parliament has agreed to, among other things, to increase VAT in a number of sectors and the pension system.

After such a vote, the south European country has paved the way for European structures to make the decision to allocate funds necessary for the restoration of work of Greek banks and the cover of the debt of EUR 3.5 billion Greece has before the European Central Bank on 20 July. The EU plans to a loan of EUR 7 billion to Greece. This will allow the country cover its immediate financial needs during the transition period prior to the adoption of the new bailout plan. The country needs a total of EUR 86 billion to resolve its problems. Talks about allocating this amount will take around one month.

If the third bailout plan for Greece is approved, Latvia will have to guarantee up to EUR 240 million, said Bank of Latvia advisor Andris Strazds this week. And even though only part of this amount will have to be provided and the other part will serve as guarantee, it will nonetheless increase Latvia external debt. Strazds said he does not believe Greece will even return the money it has borrowed over the years. ‘We risk the money of our taxpayers,’ – he said.

He added that the size of financial assistance to Greece has grown considerably over the past several weeks because of absurd actions of this country’s government: from a dozen billion euros to nearly a hundred million euros. As the Finance Ministry explained it, the aforementioned EUR 240 million will be taken from the Latvian budget only if Greece fails to return the loan.

Does anyone in the world truly believe Greeks plan to return at least part of the debt?

And even though both Governor of the Bank of Latvia Ilmars Rimsevics and Finance Minister Janis Reirs, and even Prime Minister Laimdota Straujuma, have been doing their best to convince residents that the Greek crisis will not affect Latvia the slightest, BNN warned multiple times: it will affect Latvia and Eurozone.

What does Iran have to do with anything?

There was another event this week. This one does not seem to have any relation to Latvia at first glance. Nevertheless, it may have serious geopolitical consequences for Latvia as well.

The long-lasting talks between Iran and six major countries – France, UK, Germany, USA, China and Russia – concluded this week. As soon as the agreement has been ratified by the UN and government of countries, it will be possible to talk about the conclusion of the 12-year long dispute with Iran in regard to the country’s nuclear plans. The reached agreement states that Iran will not develop its nuclear programme for military purposes and western countries will gradually lift their sanctions off the country, allowing it to return to the international market.

Iran means oil. The country has the fourth largest oil deposits in the world after Venezuela, Saudi Arabia and Canada. High-quality Iran oil is concentrated in a small region and its collection is cheap. Iranian export could rise to one million barrels in the first year after lifting sanctions. What is more important, international demand for oil can be satisfied completely in 2016 with oil from Iran alone.

Globally this means the appearance of a new player. This will prevent prices from jumping. On the other hand, oil price below USD 60 per barrel will lead to the decline in the extraction of expensive shale oil in USA, which will slightly slow down the shale revolution. For Latvia this means the fuel price will not change much. With that, the prices of goods and services that rely on oil prices will not change much.

Having guarantees is nice

While complicated plans are being executed on the global chess board, Latvian entrepreneurs are not chasing dreams and promises. They do in fact take their responsibilities very seriously. First of all, most of them wish to increase their level of knowledge of foreign languages and improve their marketing skills.

According to results of the recent Citedele Index, 43% of Latvian managers mentioned foreign languages when asked about which skills or knowledge would benefit their employees the most. Increasing knowledge and marketing skills is the second priority for entrepreneurs.

Acquisition of additional knowledge in IT areas (29%) and financial planning (27.5%) are also among the most often mentioned areas for improvement.

According to experience, entrepreneurs, especially young ones, often find it difficult to differentiate between financial flow and calculating revenue/expenses. This is why company managers should consider improving their knowledge and skills in these areas. Small and medium-sized companies are often unable to afford a financier. It is only harder to do business if you don’t know exactly what you’re doing, says member of Citadele Bank’s board Santa Purgaile.

It is also worth mentioning that some entrepreneurs mentioned that they would make use of additional knowledge in bureaucracy, journalism and pedagogy. Motivation and positive thinking also play a major role.


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