RESTRICTED
WORLD TRADE WT/SPEC/26
22April 1996
ORGANIZATION(96-1471)
Original: English
ACCESSION OFLATVIA
Presentation paper tothemeeting oftheWorking Party
onLatvia 'sAccession totheWTO
22March 1996
I. Macroeconomic status ofLatvia
Existence ofprivate property asaninstitute hasbeenensured. Atthebeginning of1996, the
share ofpeople employed intheprivate sector hasreached 62percent. Intheresult ofprivatization -
property structure inagriculture hasessentially changed, themajority oftrading, public catering and
household service companies belonging tolocalgovernments hasbeenprivatized, restructuring and
privatization ofbanks issuccessfully continued. Privatization ofmedium sizeandbigpublic companies
inthefirstyears ofreforms hasproceeded ataconsiderably slower pace. Main reasons forthedelayed
privatization were: financial problems, thenational currency wasintroduced onlyinMarch 1993,
substantial economic dependence fromtheformer Soviet Union, weak private sector, lowpurchasing
power ofpopulation ofLatvia, political decision togrant priority status tomatters ofdenationalization
andnotprivatization, etc.Asaconsequence ofcentralization ofprivatization activities andcreation
ofPrivatization Agency ofLatvia atthebeginning of1994 -privatization process ofbigandmedium
sizepublic companies hassubstantially accelerated andthegovernment hastaken certain steps forits
stillgreater activation.
Arecognizable levelofmacroeconomic stability hasbeenachieved incomparison withother
countries oftransition economy: rapidfallofGDPinthefirstyears ofreforms hasbeenstopped already
inthemiddle of1993, inflation hasbeenlowered from thelevelclose tohyper-inflation amounting
to951.3 percentin1992 to25percentin1995; budget deficit withtheexception of1995 hasbot
exceeded 2percentofGDP (in1995 duetothecrisis ofcommercial banks budget deficit reached
4percent); Stateexternal debtattheendof1995 was9.6percentfromGDP andtogether withthe
internal debtconstituted 16.8percentfrom GDP.
Starting withthemiddle of1994exports havestarted togradually increase which particularly
refers tocountries oftheEuropean Union, yetimports within thesame period havegrown evenfaster
thusdeteriorating theoverall external tradebalance. However, owing tothepositive balance ofservices
which hasbeenachieved using advantages ofthegeographical situation ofLatvia -thecurrent account
oftheBalance ofPayments hasbeenbalanced.
Asubstantial amount offoreign investments hasbeenattracted practically starting fromazero
level(according tothestatistic dataasof1October 1995, theamount offoreign investments constituted
approximately 261.5 million Ls,i.e.morethanUS$500 million). Direct investments peroneinhabitant
in1994havebeendrawn intheamount ofapproximately US$86, thesameamount based onpreliminary
datahasalsobeenattracted in1995.
Thework ofcreation ofastrong andstable banking system iscontinued. Ahead oftheofficial
application ofLatvia tojointheEU-Latvia hasstarted toimplement allthemostimportant EUbankingWT/SPEC/26
Page2
directives. However, in1995 Latvia wentthrough serious banking problems caused byinsolvency
ofsome individual commercial banks which wasbased onwrong banking strategy, involvement in
unjustified andrisky transactions andabsence ofrealistic loanguarantees, etc.TheBank ofLatvia
andtheGovernment havetaken fastaction toeliminate theoverall crisis ofthebanking system and
toprove thatthestrategy ofseparation ofthebestandrequirements respecting banks isworking in
practice. Now, thebadexperience isbehind andsystem ofbanks isnotasbulky asbefore, yet
substantially stronger.
Despite theachievements inensuring ofstability ofnational economy isstillquite alotof
problems: asignificant partofinhabitants liveonthelevelofpoverty; unemployment hasstabilized
atarather highlevel(atthebeginning of1996theregistered levelofunemployment reached 6.6percent
from economically active population andthere exists alsohidden unemployment); rehabilitation of
national economy isobserved onlyinsome individual areas andmany branches ofnational economy
andparticularly those which werepreviously deeply integrated innational economy oftheUSSR are
unable togetoutofstagnation.
Theobjective ofeconomic policy ofthegovernment in1996istocontinue lowering inflation
sothatitslevelin1996islessthan20percent,toreach arealeconomic increase andgrowth offoreign
reserves oftheBank ofLatvia. Thegovernment hascommitted torestrict theinternal andexternal
Statedebtandbudget deficit for1996hasbeenapproved intheamount of2.3percentofGDPdespite
thecurrent difficulties withbudget revenues andpublic pressure toincrease expenditure which should
beviewed uponasastrategy ofitsfurther restriction. Suchpolicy isgoing topromote private sector
investments andwillform thebasis oftheeconomic growth ofthecountry inthefollowing years.
Forecasts indicate thatstarting with1998increase ofGDPby5-6percentperyearcanberealistically
achieved.
2. Economic Policy oftheGovernment
Thenewgovernment which came intooffice attheendof1995 hascommitted toensure
irrevocability oftheprocess ofeconomic reforms. Itsfundamental standpoints inthefurther flowof
economic reforms areasfollows:
Intheareaoffinances andmonetary policy:
- tosupport strict monetary policy allowing toissue onlytheamount ofmoney determined by
objectivenecessitiesofgrowthofGDP(economicactivity)andcontinuationofloweringinflation;
- toconsistently move inthedirection ofadeficit-free budget;
- toimprove collection oftaxes bydistributing notmore than35percentofGDP through the
taxsystem;
- nottoallow internal andexternal Statedebtinconjunction withother Stateliabilities toexceed
20percentofGDP;
- toperfect legislation onbanking system ofLatvia, crediting regulations andcontrol over
enforcement ofsuchlegislation;
- todevelop financial infrastructure toenable ittoprovide residents ofLatvia, entrepreneurs,
foreign customers withadequate services rendered bybanks, credit institutions andinsurance
agencies;WT/SPEC/26
Page3
- tocreate aviable realestate market anddevelop mortgage loans;
- todevelop securities 'market andimprove mechanisms ofitssupervision.
Intheareaofpromotion ofentrepreneurial activity andinvestment:
- tocreate astable andsafeeconomic environment byproperly settling economic legislation,
especially inthefieldoftaxes andcustoms procedures;
- toensure development offaircompetition andsettle supervision procedures overnatural
monopolies;
- toconsistently follow activities ofmonopolies inthefields ofcommunications, transport and
energy supply;
- tofurther promote foreign investments byestablishing procedures offiling ofentrepreneurial
activities andbysimplifying procedures ofpurchasing landbyforeign investors;
- tosecure safety ofgoods andservices, responsibility ofmanufacturers andservicers;
- toimplement public investment programmes forthedevelopment ofinfrastructure.
Intheareaofsettling property relations:
- tointensify privatization process byaccelerating privatization ofbigpublic companies, by
specifying possibilities ofutilization ofprivate certificates inprivatization, bysimplifying
privatization procedures andbyactive involvement intoprivatization process ofinvestors from
thecountries withwhich Latvia hasentered intoagreements onprotection ofinvestments;
- toorganize management ofpublic property;
- tocreate asystem ofState andlocalgovernment procurement.
Intheareaofsupporting manufacturers ofLatvia:
- toimplement exports promotion activities including creation ofcredit guarantees, export
insurance andfinancing funds;
- topromote thedevelopment ofsmall andmedium sizebusiness withfavourable taxpolicy by
creating specific funds offinancing andcredit guarantees;
- toprovide Stateassistance inobtaining information about international standards andquality
systems byimproving andfinancing therespective agencies;
- toundertake forecasting andorganization ofretraining ofthework force;
- topromote development oftransit andimprove border infrastructures;
- toeliminate smuggling ofgoods when imported, exported ortransited.
Intheareaofregional development andenvironment protection:WT/SPEC/26
Page4
- toimplementregionaldevelopmentprogrammeschiefobjectiveofthembeingcreationofoptimal
displacement ofproduction factors andsocial infrastructure onthewhole territory ofLatvia,
adecentralized, balanced development oftheterritory oftheState;
- toachieve essential improvement ofquality oftheenvironment inhigher riskterritories and
nottoallow itsdeterioration inother territories.
Intheareaofsocial policy:
- toimprove thestarted implementation ofsocial security andinsurance principles, i.e.social
insurance payments should correspond tocontributions andtocontinue working atthepension
reform;
- toprovideopportunitiesforunemployedtogetinvolvedinpublicworks,retrainingandeducating
programmes;
- tosupport andperfect system ofeducation.
3. Integration intotheinternational communities
Thegovernment considers thecontinuation oftheintegration ofLatvia intoeconomic circulation
ofinternational communities. Toimplement thisthegovernment hascommitted togetoriented towards
deepening ofintegration andcooperation inthealready existing regional unions andinternational
organizations. Itisplanned:
- topromote creation ofaunified Baltic market: toenter intoafreetrade agreement between
theBalticStatesontradingwithagriculturalproducts;toconcludeatrilateralagreementbetween
theBaltic States onthejointborder andcustoms control, toagree onunification ofcustoms
documents andprocedures andtheirreciprocal recognition;
- toenter WTO in1996/1997;
- tomake freetradeagreements withcountries oftheCentral Europe (Hungary, Poland, Czech
andSlovak Republics, Slovenia) aswellaswithother associated Member States oftheEU
(Romania, Bulgaria, Cyprus, Malta) bytheendof1998;
- stabilization ofrelations withtheCISStates, taking intoconsideration theprocess ofjoining
WTO bythese States.