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Economy
Economy
Since the year 2000 Latvia has had one of the highest (GDP) growth rates in Europe.
In 2006, annual GDP growth was 11.9% and inflation was 6.2%.
Unemployment was 8.5% — almost unchanged compared to the previous two years.
However, it has recently dropped to 6.1%, partly due to active economic migration, mostly to Ireland and the United Kingdom.
Some believe that Latvia's flat tax is responsible for its high growth rate, but this is not universally accepted.
Privatisation is mostly complete, except for some of the large state-owned utilities.
Latvia is a member of the World Trade Organization (1999) and the European Union (2004).
Since 2001, Latvia's chief export has been Domestic Livestock.
The fast growing economy is regarded as a possible economic bubble, because it is driven mainly 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 were appreciating at approximately 5% a month, are perceived to be too high for the economy, which mainly produces low valued goods and raw materials.
As stated by Ober-Haus, a real estate company operating in Poland and the Baltics, the prices of some segments of the real estate market have stabilised as of summer 2006 and some experts expect serious reduction of prices in the near future.
The government has recently introduced a special programme to reduce inflation and retain high growth rates.[citations needed] The main points of the plan are: .
To create a non-deficit country budget for the current 2007 year and a budget with a surplus for 2008 and beyond; .
to tax any transaction concerning real estate that has been in a person's possession less than three years; .
to increase control of credit; .
to increase energy effectiveness in homes and business to guard against possible rises in energy costs, and .
to increase work productivity and stimulate competition in business.
Latvia plans to introduce the Euro as the country's currency but, due to the inflation being above EMU's guidelines, this is unlikely to happen before 2012.[citations needed] .
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.
Latvian privatization efforts have led to the development of a dynamic and prosperous private sector, which accounted for nearly 68% of GDP in 2000.
Foreign investment in Latvia is still modest compared with the levels in north-central Europe.
A law expanding the scope for selling land, including to foreigners, was passed in 1997.
Representing 10.2% of Latvia's total foreign direct investment, American companies invested $127 million in 1999.
In the same year, the United States exported $58.2 million of goods and services to Latvia and imported $87.9 million.
Eager to join Western economic institutions like the World Trade Organization, OECD, and the European Union, Latvia signed a Europe Agreement with the EU in 1995--with a 4-year transition period.
Latvia and the United States have signed treaties on investment, trade, and intellectual property protection and avoidance of double taxation.
Economic contraction 2008
The Latvian economy entered a phase of fiscal contraction during the second half of 2008 after an extended period of credit-based speculation and unrealistic inflation of real estate values.
The national account deficit for 2007, for example, represented more than 22% of the GDP for the year while inflation was running at 10%.
Paul Krugman, the Nobel Laureate in economics for 2008, wrote in his New York Times Op-Ed column for December 15th, 2008: .
"The most acute problems are on Europe’s periphery, where many smaller economies are experiencing crises strongly reminiscent of past crises in Latin America and Asia: Latvia is the new Argentina " .
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Infrastructure
The transport sector is around 14% of GDP.
Transit between Russia and the West is large.
Key ports are in Riga, Ventspils, and Liepaja.
Most transit traffic uses these and half the cargo is crude oil and oil products.
Riga International Airport is the largest airport with 3.2 million passengers in 2007.
Source: CIA Factbook, Wikipedia
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