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Economics Minister: reindustrialisation fund could be set up already this year

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RU, Artis Kampars

The Economics Miniater Artis Kampars

If a political agreement is reached without delay, it will be possible to establish the reindustrialisation fund for financing production companies by the end of 2011, the Economics Minister Artis Kampars predicts in an interview to the business portal Nozare.lv.

It is planned to provide financing the fund by selling the state shares in enterprises; however, according to the Minister, private investments also have to be attracted. Kampars also indicates that a new fund could be created, but a more feasible variant is consolidation of the existing financial instrument holders into a single entity, including the Latvian Guarantee Agency, the Rural Development Fund, the Environmental Support Fund, as well as, possibly, the Mortgage and Land bank’s Development Department.

Such a resource should be consolidated, rather than split, Kampars says.

According to the Minister, currently the main source of finances for the fund is considered to be the sale of state shares in SIA Lattelecom and Latvijas Mobilais telefons (LMT). It is intended to assess other state assets soon. By selling shares, we can obtain significant financial resources to be further invested in developing production, Kampars explains.

He reveals that the fund could operate similarly to venture capital funds in the private sector, but with softer, simpler and more clearly defined terms. In particular, there will be no huge profit criteria from these funds – they will be the smallest possible in light of market conditions. While the investment direction should be clearly stated, focussing on the basic directions of the Latvian economic development, namely, the manufacturing industry, the priority areas of the economy, export and projects creating new jobs, Kampars specifies.

In order the fund could start operating, firstly new principles of managing state-owned shares are necessary. They have been prepared and scheduled for introduction in April. Kampars believes such fund management model is needed because it is the key for smooth operations of the fund. Funding is the third major factor.

When discussing the fund establishment deadline, Kampars points out a political agreement is an essential part. We will offer a transparent model without any underwater rocks – evaluation, open tender, higher price. Currently, I am not sure the coalition partners will immediately approve it, considering the recent Lattelecom and LMT expropriation experience. Even if the unexpected happens and the issue moves forward, I consider this process could be rounded up this year, Kampars asserts.

At the moment, there are no strong signals of disturbing elements, but, knowing that this process has caused falsifications before, the Minister is taking into account that something similar might take place. He adds that it also depends on the government’s decision. If it was a minister’s decision, it would be clear, stating a specific date.

For the time being, Kampars could not yet say to what extent private investors could involve, noting that it is too early to discuss this. Currently, the lack of own equity is a major problem for new production projects. Of course, given the financial crisis experience, banks require a very high level of equity. Sometimes this is frustrating, but we can understand banks as well – they have got burnt and owners want to be sure. These 30%, 40% or 20% of the equity would be added by the bank’s 50% or 60% of funding, and the control would double or even triple, the Minister says.

An informal council of experts has been brought in, involving bank, investor and financial expert sector, such as Swedbank’s president Māris Mančinskis, the investment banker Girts Rungainis, also a stock exchange representative and several other financial experts. It is expected the council will give guidance, suggestions and approval of whether the model is correct or not.

Private financing ensures the state investment security in the future, guaranteeing these are not some bizarre projects to vanish in the end, Kampars says.

To his mind, clear conditions are very crucial, as it is, for example, in the case of the Latvian Guarantee Agency. There can be no special interpretations and formulations. There are certain criteria and the Agency’s management makes assessments according to them. It is slightly different with the new functions similar to venture capital. Each project should be assessed separately. Of course, similarly as in structural fund acquisition projects, it is not excluded there will be people willing to use the funding for uncertain purposes. And we are not always confident that the business is capable of calculating and predicting financial risks, so that after five years the state could take out the capital and pass it further.

Kampars considers the establishment of the fund to be one of the main cornerstones of his work. It is named the reindustrialisation fund or, according to Kampars, in a more simple language – manufacturing business renewal fund, given the rather difficult situation of the Latvian businessmen.


Leave a reply

  1. Ronis says:

    The indernational investors are deserted the country because of tax burdenDo youthink Europe has money to waste in latvian economy?

    Thumb up 0 Thumb down 0

  2. smatrii says:

    What kind of international investors do want we? Any? Pig farm or big bank investors?

    While we are thinking, this is great idea as old as hell – to strengthen finances already available. Kampars is good, he will manage that!

    Thumb up 0 Thumb down 0

  3. Jane says:

    AKAIK you’ve got the aneswr in one!

    Thumb up 0 Thumb down 0

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