Latvia is a democracy with a unicameral Parliament. Executive power is in hands of the President, who is elected for five years. Latvia joined both NATO and the European Union in the spring of 2004.
Having had the most difficult starting conditions among the post-communist states, as formerly integral parts of the Soviet Union, the Baltic states are now among the countries most highly ranked by the World Economic Forum in terms of macroeconomic stability, with Estonia and Latvia being the two leaders. These nations have been registering dynamic economic growth rates, outpacing those of Central Eastern Europe and maintaining this brisk pace for several years.
Economy in Latvia
Since the year 2000, Latvia has had one of the highest GDP levels in Europe.In 2006, annual GDP growth stood at 11.9% and inflation was 6.2%. Unemployment is almost unchanged in comparison with the previous two years and stabilized at the level of 8.5%. However, it has recently dropped to 6.1%, partly due to active economic migration, mostly to the Republic of Ireland and United Kingdom. Some believe that Latvia's flat tax is responsible for its high growth rate, but this is not universally accepted. Privatisation has been mostly completed, except for some of the large state-owned utilities.
The fast growing economy is regarded as a possible economic bubble, because it is driven mostly by growth of domestic consumption, financed by a serious increase of private debt, as well as a negative foreign trade balance. The prices of real estate, which increases at a level of approximately 5% a month (due to a lack of tax legislation that could prevent speculations in the real estate market), are perceived to be too high for the economy, which mainly produces low value goods and raw materials. As stated by one of the leading real estate companies operating in Latvia and the Baltics, the prices of some segments of the real estate market have been stabilised as of summer 2006 and some experts expect a serious reduction of real estate prices in the near future. At the end of 2007, the government introduced a special program to reduce inflation whilst retaining high growth rates. Latvia plans to introduce the Euro as the country's currency but, due to inflation being above EMU's guidelines, this is unlikely to happen before 2010.
Privatisation in Latvia
Privatisation in Latvia is almost complete. Virtually all of the previously state-owned small and medium companies have been successfully privatized, leaving only a small number of politically sensitive large state companies. In particular, the country's main energy company, Latvenergo remains state-owned and there are no plans to privatize it. The government also holds minority shares in the Ventspils Nafta oil transit company and the country's main telecom company, but it plans to sell those. Despite a bad image based on loosely controlled privatization efforts in the early days, as well as the difficulties of privatizing the utilities, Latvian privatization efforts have led to the development of a dynamic and prosperous private sector.
Foreign Direct Investment
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 labour. Latvia has been a member of the World Trade Organization since 1999.
Infrastructure and communication
In 2006 Latvia had over 2,347 km of railway, which was more than in larger Lithuania. In 2002, Latvia had over 73,202 km of highways which is not the best when compared to other Baltic countries, especially when mentioning that only 28,256 km of them are paved.. However over 2 million of people used mobile phones in 2006 and over a million had access to the internet.
GENERAL DATA
Area: 64,589 sq km
Population: 2.3 million
Capital city: Riga
Language: Latvian
Ethnic groups: Latvian 60%, Russian 27.3%, Belarusian 3.7%, Ukrainian 2.5%, Polish 2.4%, Lithuanian 1.4%, other 2.7% (2005)
Land boundaries: Belarus, Estonia, Lithuania, Russia
MACRO DATA
GDP (real growth): 11.9%
GDP (PPP): € 13.03 billion
GDP per capita: € 5,667.39
Inflation: 6.6%
Unemployment: 6.8%
Export: €5.51 billion f.o.b.**
Import: € 8.16 billion f.o.b.**
* 2006 est. source: Eurostat
** 2006 est. source: CIA
USEFUL DATA
Currency: Latvian lat (LVL)
Exchange rate
(2006 avg):
€/LVL 0.702804
Time zone: GMT +2
Area code: +371
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