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On renewing confidence in the Latvian economy
7 October 2009
What the Bank of Latvia, financial and economic experts, and
entrepreneurs have been warning against in recent months and weeks is
happening. Another wave of distrust is beginning to
roll over Latvia, potentially bringing higher interest
rates, worsened conditions for entrepreneurs. Currently there are two main reasons behind
such distrust and lack of confidence: the many less than clear signals
associated with the process of adopting the state budget and the called
for legal amendments that would limit the liability of borrower toward
lender to the value of collateral. Such a measure should have
been adopted earlier, for purposes of slowing down lending, or it
should be postponed: this is the most inappropriate moment
possible. (It would be equally inappropriate to make such a
measure retroactive.)
Right now, as economic recovery is gradually coming within our reach,
such a measure would not help to encourage lending; on the contrary: it
would slow the recovery down. The most serious problem, however, is
that it would diminish confidence in the Latvian financial sector and
Latvia's chances for restoring its economic health. In the
situation where the world's attention is focused on us, there is a most
urgent need for fixing the budget, by setting state expenditures at
levels that are sustainable in the long run, and for fostering the
financial stability. If this does not happen, the situation and future
prospects will worsen not just for the economy as a whole but also for
each of its participants: the government, banks, entrepreneurs, and the
general population.
Press Service of the Bank of Latvia
