Raita Karnite

In order to predict whether the emergency Saeima elections will affect the current national economic policy, it is important to know who will be the new prime minister and finance minister. Given the events in Europe, it is clear that Latvia can expect hard times, Raita Karnite, board member of the Economic Forecasting Centre, admits in an interview to the news portal BNN.

We have to address a very difficult issue: whether to choose austerity or development? Because these growth directions cannot be combined, the economist says, adding that it is difficult to predict how the situation will evolve in Latvia. Similarly as with Parex Bank in the previous crisis, the state of Latvia is now dealing with airBaltic issues, requiring investements of 100–200 million lats.

It is clear that the state of Latvia as the largest shareholder has badly managed the airline, but if it fails to find a good manager, it should better sell the airline, Karnite says.

She believes that if the current Prime Minister Valdis Dombrovskis and the Finance Minister Andris Vilks will remain in office, the first of the two options will be continued – retaining stern austerity measures that will undermine the demography and growth. If these posts are taken by Zatlers Reform Party’ s candidates, the focus will still stay on how strict austerity measures can be implemented. Whereas, if these posts are taken by Harmony Center’s representatives, the economic growth prospects could be higher.

With Harmony Center being in power, the relations with Russia could improve as well; the question is how will they be implemented – in a «clean or dirty» way. Whereas, the party All for Latvia! -FF/LNNK will most likely not have contribution to the economic development, as this political force has other priorities, Karnite concedes.

Moreover, after reading the comments in foreign media, it can be concluded that other countries were more concerned about AFL-FF/LNNK gaining power in Latvia. The question remains – how much Latvians themselves want such scenario. However, it does not mean that I favour Harmony Center. Not at all, but in view of whether Latvia will have people, money and development at all, does it matter who achieves the goal, Karnite says.

Asked about next year’s budget deficit and its impact on the public debt, Karnite recognizes that if it is not smaller than 2.5%, Latvia’s debt will rise, as well as its servicing costs, which could negatively affect the investment climate in Latvia and investors’ confidence in this country.

In terms of the public debt, the economist points out it is mostly important to live within one’s means, which does not mean just saving, but also production, development and growth. The overall economic situation in Latvia is important. It could be better if not the highly fragmented national economy.

The latest State Treasury’s figures show that the government and municipal debt amounted to 5.371 billion lats in late August. Compared to the end of July, the debt has risen by three million lats. However, Latvia’s debt has increased by 290.6 million lats since the beginning of 2011. In comparison – it accounted for 5 080 897 000 lats in late 2010.

While Aleksis Jarockis, head of the Finance Ministry’s Communications Department, informs the portal BNN that, compared to other European Union member states’ sovereign debt ratio based on a single methodology, Latvia’s debt level (hitting ~45% of GDP in late 2010) is still regarded as a moderate, despite the substantial growth in recent years.

Over the next five years, Latvia has to repay the debt of ~ 3.5 billion lats, accounting for ~67% of the currently assumed public debt obligations. From 2012, Latvia has to start repaying the received funding within the international loan program framework.

The repayment of debt bonds maturing in the medium-term, including the repayment of funds received within the international loan program, is planned by refinancing the public debt with new borrowings in domestic and international financial markets.