The Bank of Latvia » For All » Publications » The Annual Report » 2001
Introduction
2001 was marked by continued growth in the Latvian economy, although external demand declined and growth in transit slowed in the latter half of the year. Domestic demand continued to rise and the stock of loans increased. Growth across the major sectors of the national economy ranked Latvia high among the countries of Central and Eastern Europe in terms of GDP growth. In 2001, GDP increased by 7.6% in Latvia. No marked changes were observed in the unemployment rate, which was 7.7% in December 2001. Influenced by external factors, average annual inflation rose slightly. During the year, inflation ranged between 0.7% and 3.6%, and in December, the annual rate of inflation was 3.2%.
The country's fiscal position improved in the reporting year: the fiscal deficit in the general government budget was 87.2 million lats (a year-on-year decrease of 27.3%) 1.8% of GDP (2.8% in 2000).
In 2001, the balance-of-payments current account deficit equalled 10.1% of GDP (6.9% in 2000). A year-on-year increase was reported in the services surplus. The foreign trade deficit increased, as imports of goods rose at a more rapid pace than exports. Capital and intermediate goods were dominating in imports, which promoted modernization and growth in the national economy. Foreign currency inflow into Latvia was larger than needed to cover the current account deficit; and therefore, the balance of payments was in surplus. The Bank of Latvia's net foreign assets equalled 4.1 months' imports in December 2001.
Major banking indicators continued to grow. The significant growth of credit institutions' assets, loans granted, deposits received and equity capital reflected increasing confidence in the Latvian banking sector.
A decrease in lending rates, the successful issuance of government bonds of 3- and 5-year maturity, which took place in the first half of 2001, and the huge interest in the November issue of 7-year eurobonds (200 million euros) were indicative of diminishing credit risks. The international rating agencies Standard & Poor's, Moody's Investors Service and Fitch Ratings reaffirmed the ratings previously assigned to Latvia, confirming the positive outlook of the country. In 2001, two of the international rating agencies upgraded Latvia's outlook in respect of long-term obligations in foreign currency from stable to positive. Hence, in next twelve months Latvia's credit ratings might be upgraded.
As of July 1, 2001, the Financial and Capital Market Commission supervises participants of the financial and capital markets, and the Bank of Latvia no longer supervises credit institutions.
With the completion of the new building of the Bank of Latvia's Riga Branch in the last quarter of 2001, Latvia has acquired a modern vault that satisfies security standards. The Riga Branch building also houses the Bank of Latvia's interbank payment systems and a modern computer centre. Tribute should be paid to the Deutsche Bundesbank for assistance in implementing the project, which was sophisticated in terms of construction and technologies applied.
In December 2001, Mr. Einars Repse resigned from the post of the Bank of Latvia's Governor. Mr. Repse was elected Governor in 1991 and reelected in 1997. It was under his guidance that the Bank of Latvia evolved into a modern central bank pursuing strict monetary policy. During his office, banking supervision in Latvia was changed to conform with the Basle Core Principles for Effective Banking Supervision. In 1993, the Monetary Reform Committee, whose member was Mr. Repse, restored the national currency, the lats. The Saeima of the Republic of Latvia has appointed Mr. Ilmars Rimsevics as Governor, recognizing his great contribution as Chairman of the Bank's Executive Board and Deputy Governor (elected in 1992; reelected in 1998).
With a view to Latvia's commitment to political and economic integration in the European Union (EU), at the end of 2001 the Bank of Latvia focused on informing the general public about the euro cash changeover in twelve member states of the EU, outlining the changes that users of the new single European currency, both individuals and legal persons, might also face in Latvia.
