It seems that the main event of last week was the National Armed Forces Development plan for 2014-2024. What does this have to do with economy? Everything.

The army in the service of economy

Last week, the Cabinet of Ministers (CM) approved the National Armed Forces Development plan for 2012 – 2024, which provides for significant investments in the Latvian army. Only in the next five or six years it is planned to run different programs with a total estimate of 381 million LVL. The money will be used, among other things, for the procurement of armoured vehicles. So it seems that the Latvian army, which led a modest life during the crisis, will become an active buyer in the coming years. But Latvia does not produce neither armoured vehicles, nor helicopters. So what will the local economy gain from military generosity?

In autumn, 2010, the government approved the regulations, according to which all product procurements over 2 million LVL must be supplemented by offset deals. These regulations provide that the supplier of, for example, helicopters will need to support local economy in one of three available ways: by procuring services or goods from Latvian companies, invest money in local production or purchase Latvian technology, or, finally, to put an order for research to be carried out here. It is expected that during the realization of the Development plan for 2012-2024 the principle of offset deals will be used very actively, and in a way that would ensure Latvia receives the maximum benefit to its economy.

«It is possible to request that the supplier organizes the assembly of the equipment here, in Latvia. But in this case, after the conclusion of the contract, the fate of the created company is unclear. It is possible that there will be more benefits if they will be obliged to procure microchips here. This does concern large scale orders, and this means – large offset deals could become a stimulus for the development of the companies that produce these microchips. This means that after the end of the contract, our country would have a modern, competitive production line, or even a whole industry,»- Defence Ministry explain the situation.

Everything for sale!

One more Latvian bank will leave the market within the next few years: last week, the decision was made to sell the commercial department of the Mortgage Bank and Land Bank. The administrations of the Mortgage Bank and the Finance Ministry still have not revealed the costs of the dead and the names of the buyers. What is known right now – is that this sale includes four commercial packages. The first package is – deposits and commercial credits to individuals and small companies, the second package – commercial credits to large companies; and two packages of «daughters» of the bank – Hipo funds (pension funds) and Hipoleasing (leasing).

Preparations for turning the Mortgage Bank and Land Bank into the Development Bank began in 2009. At the time, the institution stopped giving commercial loans, concentrating on servicing state business support programs. For example, the Mortgage Bank now offers loans for starting a business, loans for micro companies, money for the development of small and medium size firms, for purchasing agricultural equipment, land, etc. It should be noted that the Mortgage Bank and Land Bank functioned in 2011 with a profit of 1.73 million LVL, and its gross assets formed in total 755.5 million LVL.

Officials related to the matter avoid explaining the situation in depth. Chairman of the Board of the Mortgage Bank Roland Panko only assures that stable, reliable banks with good reputation will become the buyers. As the consultant from SEB Enskilda Martins Krutainis added – they are already represented in Latvia.

Energy «buffet breakfast»

Latvian intends to take at least a two-year pause, to evaluate the advantages of its participation in the construction of the Visagina Nuclear Power Plant. By agreeing to this project, Latvia would receive 20% of shares of the NPP, paying 1 billion EUR for it at the same time. On one hand, nuclear energy remains the cheapest, on the other hand, according to the calculations of the Economy Ministry, the reconstruction and widening of TPP-2, in which 367.9 million EUR are already invested, will increase Latvia’s energy independence from the current 70% to 77-80%.

Furthermore, and the head of Latvenergo Aris Zigurs notes, it is necessary to keep in mind not only the current interests, but the long term perspective as well. The process of integrating Baltic States into the energy system of Nordic States is currently on-going. The cable connecting Estonia and Finland will come online in two years; and in four years – the connection between Lithuania and Sweden will come online as well. The construction of the NPP in Kaliningrad and other regions should not be thrown out of the calculations. All this could potentially decrease electric energy procurement prices.

In other words – Latvia participation in the VNPP Project offers a possibility to acquire additional base powers, however, the Visagina NPP suddenly turns from being “the only source power”, to being merely one more meal on the energy «buffet breakfast» of the region.

For a fair competition

The government of Latvia tightens the sanctions for unjust commercial practice: from now on, violating consumer rights will be punished with a fine up to 100 thousand LVL or a forced halt of business activities. Commercial practice is considered unjust in Latvia if it has a negative impact on clients, confuses them, or is aggressive. Last week, the CM Committee approved amendments to the current regulations that provide for the increase of the authority of the Center for Consumer Protection in its fight against dishonest firms.

So, if the new regulations become in force, the supervisory institution will receive the right to use a fine up to 100 thousand LVL against dishonest businessmen. The current punishment is 25 to 500 LVL for individuals and 10 to 50 thousand LVL for legal persons. As the authors of the amendments from the Economy Ministry state, the current level of sanctions does not motivate violators to turn away from unjust practice and does not cover the losses of unlucky consumers. In the event if the company refuses to carry out the order of the Center, the supervisory institution will have the authority to achieve the closure of the company’s website (first level domain – .lv). As a last resort, the organization defending consumer rights will be allowed to temporarily halt the economic activity of enterprise.

Ref: 017.109.109.2224