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Monday 29.05.2017 | Name days: Raivis, Raivo, Maksis
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Economic Diary of Latvia. To tempt Brexit defectors

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RULatvia had the slowest growth of GDP among Baltic States in Q3 2016, according to the latest data from the Central Statistical Bureau of Latvia. Nevertheless, this does not seem to prevent Prime Minister Maris Kucinskis from hoping for GDP growth of 4-5% a year in the future.

Compared with the same period of last year, Latvia’s GDP grew 0.3% in Q3 2016 (by 1.7% in Lithuania and by 1.1% in Estonia).

In the first nine months of 2016, Latvia’s GDP grew 1.4% in comparison with last year. In actual prices it was EUR 18.2 billion, including EUR 6.431 billion in Q3.

The largest growth in Latvia was noted in the processing industry (+4%), manufacture of computers, electronic and optical devices (+22%), manufacture of machinery, mechanisms and vehicles (+13%) and manufacture of non-metallic mineral goods (+10%).

Declines were noted in the manufacture of clothes (-5%), manufacture of chemical substances and food products (-8%), repairs and maintenance of equipment (-11%). Construction output has declined 22% over the course of the year. The biggest decline was noted in the segment of engineering structures – by 36%.

The Organisation for Economic Co-operation and Development has reduced economic growth outlooks for all three Baltic States for 2016. According to OECD’s latest outlook, Latvia’s GDP will grow 1.1% in 2016.

Prime Minister’s optimism

Latest information from the Central Statistical Bureau of Latvia and OECD do not seem to bother Prime Minister Maris Kucinskis, as he expects Latvia’s long-term GDP growth to reach an astonishing 4-5% annually.

It is no utopia as long as objectives set in the government’s declaration and action plan are accomplished. These objectives include creating a competitive business environment and favourable investment climate, as well as developing strategic investment directions, Kucinskis mentioned in his speech addressed to members of the Saeima.

According to the prime minister, even Brexit can be positive for Latvia, but only if the country prepares accordingly for it. Kucinskis mentioned: an opinion was voiced shortly after Brexit that many companies registered in the UK may decide to relocate to other EU countries.

Foreign investors wishing to register companies in Latvia should be given an opportunity to fill all the necessary documents in English. Investors should also be given the option to fill all accounting documents in English as well, the prime minister said. In this context, the prime minister has also proposed allowing businessmen to pay taxes in any currency.

Unpleasant Micro-enterprise tax

It is a paradox of our time – Latvia’s government is prepared to consider the needs of everyone (foreign investors, refugees and other foreigners) except its own citizens, who live and work in Latvia all the time.

Amendments to the Micro-enterprise Tax Law and Law on State Social Insurance that could potentially kill off tens of thousands to small family enterprises are believed by ministers to be correct and worthwhile. Only opposition parties are trying to oppose them. The parliamentary factions of To Latvia from The Heart and Latvian Association of Regions have asked the president not to approve amendments for those laws.

According to the president’s advisor for law and legal matters Kristine Jaunzeme, the possibility for submission of amendments for a repeated review is being considered.

NSL notes that the parliamentary majority ignored the opinion of society by approving those laws. The party notes that men of the government are gradually becoming more like masters to Latvia’s slave population.

The party believes amendments to the Micro-enterprise Tax Law contradict not only principles of effective state administration and increase the general distrust towards the government but also breach Section 90 of the Constitution of the Republic of Latvia.

Latvian Association of Regions agrees that amendments contradict the Constitution and will lead to an increase of social benefit recipients. The faction had previously proposed cancelling those amendments, referencing Section 108 of the Constitution – the right of every person to freely choose their work. The party also referenced Section 107 of the Constitution – the right for every person to receive wages that are not below the country’s minimum.

According to the party, amendments mean a future full of uncertainty for employees and employers. The planned changes will painfully impact regions and small enterprises in which people are employed part-time. The government has no right to treat its residents in such a way, said Martins Bondars, chairman of LAR.

People will be forced to leave the market and join the ranks of benefic recipients or leave the country altogether. Businessmen, on the other hand, will be forced to relocate their businesses to other countries that do not have such restrictions, the party notes.

Profitable business

According to results of an evaluation of the compliance of banks’ internal control systems with American standards of prevention of money laundering and financing of terrorism, none of Latvia’s banks received excellent score, noted Maija Treja, spokesperson for the Finance Capital and Market Commission.

Consultants from USA had concluded their independent evaluation of customer service processes in 12 Latvian banks. The most serious problem and risk uncovered by experts in certain banks was that their internal control systems were insufficient to comply with the principle of independence.

Experts also found insufficient control over the study of clients’ business activities and the unjustified risk assessment.

Peteris Putnins, chairman of FCMC, has said that all Latvian banks should draw conclusions from results of this inspection. All of them, not just the ones engaged in non-resident services, should work hard to improve their internal systems.

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