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Monday 25.06.2018 | Name days: Maiga, Milija

Sanctions against Russia could impact Latvia’s economy

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RURussian businessmen are interested in Latvia’s energy, banking, manufacturing and real estate sectors. Russia’s direct investments in Latvia reach EUR 580 million. Russian money does, however, end up in Latvia via other routes as well.

There is also the money of a number of Russian oligarchs present in Latvia. These individuals either have been added or have been close to Western countries’ sanction lists, as reported by De facto programme of LTV.

Many foreign politicians and analysts have said that putting oligarchs’ money at risk is the most effective way of forcing Russia to listen to the West. Aside from those who have already experienced sanctions, the British The Guardian mentions one of the wealthiest people in Russia – Viktor Vekselberg – as one of the possible targets for USA. In Latvia, Vekselberg’s owned company is busy with a EUR 50 million construction project to provide the Latvian State Revenue Service a new building in Mežaparks.

The name of billionaire Vladimir Yevtushenko has been mentioned as well. Sistema financial corporation – owned by Mr Yevtushenko – has expressed interest for the procurement of state owned shares in Lattelecom.

The owner of Severstal – Aleksey Mordashev – is also mentioned among the Kremlin-loyal businessmen. Power Machines has acquired orders from Latvenergo worth nearly 80 million over the past half-year. Power Machines is also responsible for performing the reconstruction of Kegums HES and Plavini HES. Latvenergo Production Manager Māris Kuņickis explains that the offer of Power Machines was the most economically beneficial: ‘Worst case scenario – we will never receive the turbines we need. This could force us to look for other ways of modernizing our power stations.’

Sanctions have not impacted Mordashev, who had received a Cross of Recognition personally from President Andris Berziņš for his contribution to Latvia’s economy.

Latvia’s economic ties with Russia are not as strong as they were in the ‘90s. This will allow Latvia to overcome economic sanctions with relatively low losses if the EU decides to introduce sanctions against Russia, believes former Economy Minister of Latvia Daniels Pavļuts.

In the event of sanctions against Russia, Latvia’s sea ports and transit sector as a whole would suffer the most – the country would lose nearly 70% of all handled cargo. This kind of situation is real even without sanctions, because Russia’s policy clearly provides for the reduction of cargo flow through the Baltics by 2020.

‘The situation in Crimea may only speed up this process,’ – says the head of Latvian Logistics Association Normunds Krūmiņš. He adds that Estonia experienced a similar thing after the ‘Bronze Soldier’ riots. ‘Russian transit stopped, and they decided to switch to container cargo shipments and higher added value cargo. Now they live quite well,’ – says Krūmiņš.

Transit sector experts say alternatives to Russia are neither safer nor more democratic – Belarus and Kazakhstan. On top of that, both countries have strong border ties with Russia. This leaves the possibility of the two working in the interest of Russia.

Energy sector is the other one that requires alternative sources. The situation does not benefit from the fact that Baltic States and Finland have both played a part in delaying the construction of a LNG terminal in the region. It would have allowed the countries to accept gas supplies from all over the world.

Russia receives at least one-tenth of Latvia’s export. The bulk of Latvia’s export to Russia is alcohol, canned fish and medicine. Latvia mostly imports gas, metals and meslin from Russia.

The Latvian Economy Ministry keeps in secret the three possible development scenarios. The worst one, according to unofficial information, includes the reduction of Latvia’s GDP by 10%. This figure was confirmed by PM Laimdota Straujuma this week: ‘It is the most pessimistic scenario and this kind of turn of events is not realistic,’ – she said.

The Bank of Latvia believes cutting economic ties with Russia will not leave any deep wounds for the country’s economy. ‘We do not have any precise estimates to confirm the possibility of such a dramatic effect even in case of the worst possible scenario,’ – says Bank of Latvia economist Andris Strazds. He believes the current uncertainty in regard to possible sanctions may change residents’ behaviour; particularly in the form of a reduction in investments.


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