Latvia Economy  

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LATVIA
GDP(2006) PPP: $35.08 billion.
Growth rate: 10.2%.
Inflation rate: 1.9%.
Unemployment: 6.5%.
GDP per capita PPP: $15,400.

Budget: Income .............. $56 Billion
Expenditure ... $60 Billion

Main Crops:
Wheat, corn, sorghum, soybean, sugar beets.

Natural Resources:
Lead, Zinc, Tin, Copper, Iron, Petroleum.

Major Industries:
Food Processing, Motor Vehicles, Consumer Durables.

NATIONAL GNP

For centuries under Hanseatic and German influence and then during its inter-war independence, Latvia used its geographic location as an important East-West commercial and trading center. Industry served local markets, while timber, paper, and agricultural products supplied Latvia's main exports. Conversely, the years of Russian and Soviet occupation tended to integrate Latvia's economy to serve those empires' large internal industrial needs. Since reestablishing its independence, Latvia has proceeded with market-oriented reforms. Its freely traded currency, the Lat, was introduced in 1993 and has held steady, or appreciated, against major world currencies. The International Monetary Fund (IMF) has noted that Latvia's economic performance the past several years had been among the best of the European Union (EU) accession countries. Real per capita GDP has grown by more than 50% compared to its 1995 level, while inflation has remained close to or below 3% since 1998. The government expects annual growth rates of about 6% in medium term. At the same time, current account deficit (ranging from 7% to 10% in the past 3 years) remains one of the key vulnerabilities of the Latvian economy. In addition, Latvian fiscal discipline deteriorated considerably at the end of 2002, when budget deficit rose to 2.7% of GDP, well above the government's target figure. However, the government's effort to improve tax administration, to fight gray economy, and to reintroduce strict budget discipline led to an improvement in the fiscal situation in the first 9 months of 2003.

Privatization in Latvia is almost complete. Virtually all of the previously state-owned small and medium companies have been privatized, leaving in state hands the electric utility, the Latvian railway company, and the Latvian postal system, as well as state shares in several politically sensitive enterprises. Despite the lack of transparency of the early stages of the privatization process, and certain difficulties in privatization of some of the largest companies, Latvian privatization efforts have led to the development of a dynamic and prosperous private sector, which accounted for 70% of GDP in 2002.

Foreign investment in Latvia remains high, as both Western and Eastern investors are trying to establish a foothold in the new EU member state, as well as to take advantage of Latvia's stable macroeconomic environment, central location in the region, and cheap labor. Representing 7.1% of Latvia's total foreign direct investment, the U.S. FDI stock in Latvia stood at $184 million at the end of 2002. In the same year, U.S. goods and services accounted for 1.6% of Latvia's total imports, while exports to the United States accounted for 4.2% of Latvia's total exports. Latvia is a member of the World Trade Organization since 1999. Latvia and the United States have signed treaties on investment, trade, and intellectual property protection and avoidance of double taxation.

In the long term, continued high economic growth in Latvia will depend on further improvements of the business environment, particularly successful drive to reduce corruption and strengthen the rule of law, and on Latvia's ability to use the opportunities presented by EU membership.