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Tuesday 17.07.2018 | Name days: Aleksejs, Aleksis

Economic Diary. The big land division.

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Discussions surrounding the long-term EU budget have become more intense in Brussels: rich countries with Britain in the lead are demanding expense reduction, the poor, including Latvia, demand the preservation of the current EU fund support volumes and significant increases of subsidies for farmers.

This scary word – “budget”

The fate of the long-term EU 2014-2020 budget will be decided on the summit of country leaders on November 22-23 in the capital of Cyprus, Nicosia. Before the big debates, leaders of different sides will try to coordinate their position and attract new supporters to their cause. Meanwhile, tension has become so fierce that the 2013 budget project review was ruined.

Supporters of living by the budget – Austria, Britain, Denmark, France, Finland, Germany, the Netherlands and Sweden – stand against increasing the budget’s expenses. According to them, economy policy needs to be applied to the whole of the EU in a situation of strict austerity in separate countries. The group of “friends of equalizing policy”, unites Baltic Countries, Bulgaria, Greece, Spain, Cyprus, Poland, Malta, Portugal, Romania, Slovakia, Slovenia, Hungary and the Czech Republic, as well as Croatia, which will join the EU in summer of 2013.

This week, leaders of the mentioned countries, including Latvia’s PM Valdis Dombrovskis, met in Brussels to formulate a united position before the upcoming summit. The main victims at risk of budget cuts are Baltic States and Hungary, ones who suffered the most in the economic crisis. They will be hit by the planned introduction of the cap on support (2.5% of GDP). Valdis Dombrovskis announced after the meeting that the aforementioned limit could be allowed to be exceeded for the four countries.

Experts predict that poor countries will still be required to seek a compromise with the rich: with that, the former will most likely face specific aid reductions.

Rating means everything

This week, Fitch Ratings increased Latvia’s ability to complete its long-term credit obligations from BBB- to BBB in foreign currency and from BBB to BBB+ in LVL. The outlook in both cases is positive. Also, experts of the agency increase Latvia’s GDP outlook from the previous 2.5% to 5% thereby showing more optimism than Latvia’s Finance Ministry (4%).

Another credit agency – Standard & Poor’s – increased Latvia’s rating before Fitch did: from BBB- to BBB on long-term obligations and from A-3 to A-2 on short-term obligations. The outlook in both cases is positive. Only Moody’s has yet to alter its expectations in regard to Latvia. During the crisis, Moody’s was the most positive towards Latvia, preserving Latvia in the investment category, while its colleagues raced to throw the country in the “bin” category.

The big land division

It also became known this week that the foundation of the function of the Latvian State Land Foundation will feature the same principles that govern Latvijas Valsts meži: servicing private agricultural land and their purchase for future lease. The new organization will be called to counter the attempts of foreigners to take control of national land.

According to Agriculture Minister Laimdota Straujuma, foreigners now own around 13% of Latvia’s agricultural land. Often this land stands without use, because foreign owners only see their new property as an investment. In order to retrieve the country’s national treasure, a program was developed in summer of 2012 – state crediting for farmers that want to buy back fields for future agricultural purposes. The total volume of funding available for Latvian Mortgage and Land Bank is 10 million LVL. The credit line will remain open until December 31, 2013. The maximum amount of one credit must not exceed 100 thousand LVL.

The State Land Foundation is proposed to be made into another instrument for land division. The draft law that will govern the function of the future foundation will be developed by the Agriculture Ministry before June 1, 2013 – according the order of the President of Latvia Andris Berzins, approved by the Cabinet of Ministers and the Saeima.

Gratitude to Eastern Europe

The leading international development banks will allocate more than 30 billion EUR for the support of economic growth in 17 countries of Central and Eastern Europe. Participants of the Joint Action Plan are: European Investment Bank, World Bank and the European Reconstruction and Development Bank. The announcement about the large support package for 2013-2014 was made on the background of reducing growth rates in the region and concerns that Eastern European members of the EU will not receive much of the promised funding from the Equalization Fund.

Albania, Bosnia and Herzegovina, Czech Republic, Croatia, Estonia, Macedonia, Hungary, Kosovo, Latvia, Lithuania, Montenegro, Poland, Romania, Serbia, Slovakia and Slovenia will be the recipients. According to the secretary of the European Reconstruction and Development Bank Estoni Williams, funds will be used to support initiatives that are most likely to support the recovery and transition towards a stable economic growth in the future.


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