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Tuesday 23.01.2018 | Name days: Strauta, Grieta

Economic Diary of Latvia. The richer the people, the better the security

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUA very interesting matter was voiced in Latvia this week. The matter addresses the link between the overall level of welfare of the country’s residents and the country’s national security.

First, ombudsman Juris Jansons made an announcement about the country drowning in poverty. He referenced the official report of the European Commission, which mentions that Latvia’s expenditures on social insurance are the lowest in the EU, which has a relatively small impact on poverty reduction.

Jansons said there are 606,000 Latvian residents at risk of poverty. This applies to 31% of the population. Latvia has one of the biggest gaps in income between wealthy and poor residents. 70% (322,000) of Latvian pensioners are paid pensions not higher than EUR 300 a month. Low-qualified workers paid minimum wages are also at risk of poverty. The highest poverty risk is noticed in Latgale.

With that, EC hopes the situation will improve, considering the 2017 budget plan provides for the introduction of a minimum income level and a general social security network. Jansons views this sceptically because the introduction of a minimum income level is not mentioned in the budget plan for 2017. According to him, Latvia’s biggest problem has always been poverty.

President Raimonds Vejonis also mentioned the problem of social inequality this week. During his meeting with representatives of Latvian Pensioners Federation, he mentioned that this is a matter of state security. Participants of the meeting mentioned that the growing risk of poverty and poor accessibility of healthcare services is an especially painful matter for pensioners and other less-socially protected groups of people.

According to the president, it is important to reduce those risks, as social security and certainty in tomorrow increase trust in the state. Vejonis named healthcare one of the primary sectors where it is necessary to finished launched reforms.

Earlier, during the economic forum organized by Certus think tank, Finance Minister Dana Reizniece-Ozola also mentioned the need to find balance between taxes, competitiveness and reduction of social inequality. If there is a group of poor people forming in society, it becomes easy to manipulate their minds, the minister concluded.

A very serious matter

In general, the matter regarding the correlation between poverty of the population and risks for security (political and economic) is very serious.

A study was published in the middle of October. This study was performed by Washington-based Center for Strategic and International Studies and Sofia-based Centre for Studies of Democratic Processes. The study published by them mentioned that Russia has commenced a campaign aimed at the acquisition of secret influence in economic and political spheres in five countries of Eastern Europe – Bulgaria, Latvia, Serbia, Slovakia and Hungary.

Particularly, Moscow is allegedly trying to become a dominant player on the energy market and other economic sectors.

In certain countries Russia has become such a major and endemic presence that it threatens state stability, as mentioned by authors of The Kremlin Playbook: Understanding Russian Influence in Eastern and Central Europe.

Among the methods employed by Kremlin to accomplish its goals are bribes, propaganda, disinformation, realization of large projects in energy sphere (including the construction of a nuclear reactor in Hungary worth EUR 12.2 billion) and support of pro-Russian entrepreneurs.

In Bulgaria (one of the poorest EU member states), Russia’s economic presence is so large that it was estimated at 22% of the country’s GDP from 2005 to 2014. This creates major risks for the country to be taken over by Russia, authors of the study note.

In priority order

Latvian Prime Minister Maris Kucinskis called the budget plan for 2017 a budget of priorities for the government. It is stated in the budget plan that healthcare funding will grow by EUR 64 million, defence funding will grow by EUR 98 million and education funding will grow by EUR 11 million next year.

Funding of the social sphere, including pensions and social benefits, will grow by EUR 197 million in 2017. Funding of public order and security will grow by EUR 80 million. An additional amount of EUR 19 million will be allocated for support of demographic processes.

It is also planned to increase minimum wages to EUR 380.

As for the budget revenue, it is planned that taxes will account for EUR 6.344 billion of the state budget. Non-tax revenue will account for EUR 513.9 million. Foreign financial assistance will account for EUR 1.114 billion. Other revenue is planned at EUR 94.2 million.

Tears of the sea

Meanwhile, a company that was once big talk in the Soviet Union and even rivalled Black Balsam, sprats, good coffee and was basically Latvia’s face, has been experiencing financial difficulties lately. Dzintars cosmetics manufacturer has voluntarily applied for legal protection to ensure the company can continue functioning in spite of financial difficulties.

As reported by the company, the crises of 2008 and 2014 had resulted in drops of Dzintars’ traditional markets, reduced sales volumes and deficit of turnover funds. The company has accumulated considerable debt. Dzintars has a tax debt of EUR 3.2 million. Last year, the company paid debts worth EUR 1.5 million.

The company needs a break and time to prepare for a breakthrough. An enormous amount of work has been done, signing large contracts with China, Iran and other countries. The first shipment was sent to China in September. Dzintars has also developed new products, the production of which requires turnover funds and time, as explained by Dzintars board member Dagnija Maike.

She also said that the company’s largest shareholder Ilya Gerchikov invested EUR 4.5 million of his own money into the company to ensure its continued function.

Riga City Zemgale District Court commenced legal protection process on 17 October. Dzintars’ turnover was EUR 5.911 million in 2015, which is 7% less when compared with 2014. The company’s losses have grown by 76%, reaching EUR 2.633 million in 2015.


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