bnn.lv Latviski   bnn-news.com English   bnn-news.ru По-русски
Wednesday 19.09.2018 | Name days: Verners, Muntis

Economist: government’s implemented belt-tightening policy hinders economic recovery

FaceBook
Twitter
Draugiem
print
(No Ratings Yet)

Economist Uldis Osis

The main problem of the government’s implemented economic policy is that the belt-tightening policy compresses the already depressive domestic market demand, accordingly slowing down the economic recovery, asserts the economist Uldis Osis. To his mind, several indicators create the illusion of an upturn, yet it rather happens regardless of the government’s policy.

Will hard times await the eurozone? How will this affect Latvia?

Post-crisis stagnation awaits the eurozone at least for the following 2-3 years. Its growth prospects are more dependent on the Eastern economic growth than from the domestic development forces. This can be explained by the fact that the Western global market is saturated with most products and services, the standard of living is high; however, there are very few new products whose consumption could stimulate the demand. Therefore, the Western economic development will continue to be based on the usual reproduction, when the product modernisation and service improvements mainly takes place.

While in the East a large proportion of the population is only now starting to engage in modern society formation process, consumption becomes more complex, new cities are emerging, and industrialisation process takes place in the manufacturing sector, which the Western countries underwent at the beginning of the 19th- 20th Century. This creates a large demand, which further propels the Western export.

Of course, this is beneficial for Latvia, because, although its production volumes are too insignificant to export something to the huge Eastern market, demand in Europe fuels Latvia’s exports and minimal economic growth.

However, there are also signs that the Eastern market begins to overheat and if similar bubble burst occurs as it happened here, a similar crisis will stroke. In this case, the world and also Latvia could lapse in a very heavy and prolonged recession.

How is Latvia’s competitiveness in the global market currently?

Latvia’s competitiveness level in the global market is still one of the lowest in the EU. In order to increase it reforms in the education system should be carried out, paying more attention to practical knowledge and skills, developing the vocational education, substantially reducing the number of education institutions, and concentrating resources on the remaining ones.

Are the current improvements in the Latvian economy partly seasonal or is it possible to talk about the economic recovery?

I would characterise it as partial unsafe economic stabilisation with series of very conflicting trends. For instance, the industrial production and also the export is increasing; however, the import is growing even faster. Consequently, the trade balance remains negative, which also means that Latvia’s competitiveness is not rising.

How soon could the economic upturn start in Latvia?

The economic upturn is not so much a question of time, as the result of the above mentioned internal and external factor combination. For example, if any problems occur in the Eastern economy, the development in Europe will also reduce, but relatively less competitive Latvia’s economy with its extensive development model could again get into serious difficulties.

How effective, in your opinion, is the government’s currently implemented economic policy? What are the mistakes?

Government’s economic policy is ineffective. The key problem is that the belt-tightening policy «crushes» the already depressive domestic market demand and accordingly hampers the economic recovery. Economists have named such policy as pro-cyclic, namely, aggravating even more the crisis period of economic cycle.

Nevertheless, several indicators, such as the domestic trade turnover growth, create the illusion that things are getting better. Yet, rather, this happens irrespective of the government’s policy, as the external factors contribute more to the economic stabilisation. External transfers – money transfers to Latvia by those working abroad – should also be mentioned, as they are becoming an increasingly important economic factor for the country in general.

Moreover, the government’s policy regarding reforms is also quite unprofessional. In most cases it is limited only to mechanical expenditure cuts, and not linked to reorganisation and restructuring, searching for the most reasonable state administration and public service delivery models. In many cases, instead of saving up the funds, this practice leads to their loss, and even damages the country’s prestige.

There are talks that in order to gain funds for 2011 budget several taxes will be increased. Will this attain the awaited effect?

This is yet another aspect of government’s flawed economic policy, which makes the current relative economic stability even more risky and threatens to unsettle it. Consequently, the tax raise in such situation may result in adverse effects – instead of decreasing, budget revenues and deficit will rather increase.

The amount of shadow economy this year has reached 32% of GDP, could it be reduced?

Reducing the shadow economy would be the most reasonable alternative to the budget cuts and tax increases. The estimates indicate that reduction of Latvia’s shadow economy at least by 10% is possible, if there is a political will and corresponding professionalism. This means that the planned budget deficit reduction next year, in theory, could be carried out only by actively combating the shadow economy, not by reducing the budget expenditure and raising taxes.

Does the «100-lats programme» damages the country’s economy?

In the crisis conditions, the «100-lats programme» is a useful short-term solution for 3-6 months, not more. I believe that at the present moment, when the most critical point is over, greater attention should be paid to involving the unemployed persons in a regular job. Thus, the «100-lats programme» should be discontinued.

Is the retirement age raise in Latvia inevitable? Why?

The retirement age raise is unavoidable due to the demographic situation in Latvia. The proportion of population of working age is still declining. Of course, there are alternatives, such as attracting labour force from other countries. However, as shown by several European countries’ experience, this causes other social and political problems.


Leave a reply

20 complaints received in first 10 days of data protection regulation

In the first 100 days since adoption of European General Data Protection Regulation, Latvia’s Data State Inspectorate has received 20 data protection violation reports, said the centre’s director Daiga Avdejanova during a meeting of Saeima’s European Affairs Committee.

Ministry: non-banking lenders should assess clients’ solvency more carefully

Although certain improvements have been noticed in the industry, Latvia’s Economy Ministry invites amendments to make non-banking lenders perform more careful evaluation of clients’ solvency and allow creditors exchange information with one another.

Saeima argues over request to assess attempts to cancel «morality amendments»

During a meeting of Saeima’s Inquiry Committee, certain members and NGO representatives exchanged harsh words on Saeima opposition deputies’ request to Prime Minister Māris Kučinskis on association Papardes zieds’ protection of interests for the cancellation of so-called morality amendments.

EU residents believe European authorities should be more involved in certain areas

According to results of European Parliament’s Eurobarometer study, published eight weeks prior to elections in EU, residents believe European authorities should be more involved in certain matters. Priorities include terrorism threats, unemployment and environmental protection.

Estonian internet user growth strongest among elderly

The share of internet users in Estonia has continued to grow in 2018 and has over the past three months increased the most among 65–74-year-olds, official statistics show.

Regulator invited to assess calculation of electricity transmission tariff

Conclusions made by State Audit in relation to tariffs employed by Sadales tīkls show that recommendations received from OECD a couple of years ago in relation to public service tariff calculation should be carefully considered and adopted to ensure balance the interests of consumers and service providers.

Latvian police points towards stagnation in road traffic safety

So far this year 91 people have died in road traffic accidents in Latvia. According to State Police Road Traffic Safety Office Chief Normunds Krapsis, stagnation is present for road traffic safety.

Latvian government to attract EUR 29.5 million to restore Latgale’s degraded territories

On Tuesday, 18 September, Latvia’s Cabinet of Ministers supported the action plan for Latgale region’s economic growth 2018-2021, which provides for attracting of EUR 29.5 million to help restore the region’s degraded territories.

China announces retaliatory tariffs on U.S. goods, seeks free trade support

Beijing has stated it would impose a duty tariff increase on American imports worth 60 billion U.S. dollars in a reaction to Washington's announcement to add tariffs on imports from China worth 200 billion U.S. dollars.

Montenegro to join NATO battalion stationed in Latvia

According to NATO Deputy Supreme Allied Commander in Europe James Everard, Montenegro plans to join the multi-national battalion currently stationed in Latvia.

U.S. looking seriously at Poland's request for American base on its soil

U.S President Donald Trump has noted the country was looking seriously at a request from Poland for a permanent U.S. military base in the fellow NATO member state and agreed that Polish concerns about possible Russian aggression were shared.

Russian plane near Syria shot down by ally targeting Israeli planes

The Russian military plane, which went missing on Monday, has been shot down by its ally Syria targeting Israel's war planes and the number of servicemen lost in the event has been corrected from 14 to 15, the Russian government stated.

Latvian border guards find more than 140 kg of hashish in a car

On 16 September, Latvian State Border Guard detained a 1991-born man and his car at Grebnev border checkpoint. A secret compartment containing 145.3 kg of narcotic substances was found in his car during a routine inspection, as reported by State Border Guard.

EU suspects German car-makers of colluding against cleaner technology

EU competition watchdogs are probing if German automotive giants have colluded to restrict the development of clean emission technology.

Number of job vacancies in Latvia up 7.8 thousand in Q2 2018

In Q2 2018 there were 24.5 thousand job vacancies in Latvia, which is 7.8 thousand vacancies or 46.6 % more than in Q2 2017. In public sector there were 7.2 thousand and in private sector 17.3 thousand job vacancies.

Latvian government desperate to resolve the growing piles of used tires problem

Latvian government has supported Environment Protection and Regional Development Ministry’s prepared report ‘On maintenance of used tires’. This report includes proposals for measures to help resolve the matter regarding speeding up recycling and regeneration rates, as well as the no less important matter of maintenance of used tires.

Cargo volumes handled by Latvian ports remain stable in first half-year of 2018

Latvian ports transshipped 43.468 million tonnes of cargoes in the first eight months of 2018, which is 0.9% more than in the same period of last year. According to data from Transport Ministry, cargo turnover’s negative balance continues declining at Ventspils port, where 13.274 million tonnes of cargoes were transshipped in the first eight months, which is a drop of 11.9%.

airBaltic carried 18% more passengers in summer

Latvian airline airBaltic has carried 2,770,047 more passengers to destinations in Europe, Scandinavia, Russia, CIS and the Middle East in the first eight months of 2018, BNN was told by the company.

Ukrainian workers in Lithuania gradually fill gap left by Lithuanian exodus

Companies in Lithuania, in particular operating in construction, logistics and retail chains, are increasingly inviting workers from Ukraine and Belarus to fill the worker shortage of Lithuanians moving to richer countries.

ABLV Bank assets worth EUR 47.14 million recovered in August

Assets worth EUR 47.13 million were recovered from the liquidated ABLV Bank in August, which is 2.2 times more than a month prior, according to the account published in Latvian Herald.

Estonia bank watchdog points to Denmark's responsibility over Danske

As to the allegations of doubtful billions flowing via the Estonia branch of Danske Bank, the Estonian watchdog of financial institutions has noted that the Danish supervisory authority was responsible for the lender's risk control.

Liepaja City Council vice-chairman steps down

On Monday, 17 September, Liepaja City Council vice-chairman for tourism and investment affairs Ģirts Kronbergs announced his resignation.

Sixteen contenders apply for Rundale Castle Museum director’s post

A total of sixteen contenders have applied for participation in Latvian Culture Ministry’s announced open personnel selection process to find the next director of Rundale Castle Museum.

Russia: Military plane with 14 Russian soldiers has been lost near Syria

A Russian war plane with 14 servicemen on board has disappeared while over the Mediterranean Sea near the coast of Syria, Russia's Defence Ministry has stated.

Unity decides not to support UGF’s initiative for people’s elected president

Unity political party has no plans to support the amendments submitted by the Union of Greens and Farmers on people’s elected president, says Unity’s chairman Arvils Ašeradens.

Most read

Most commented

Newest comments