When some countries have problems, they moan like kids and think that the world owes them a living. The deficits persist, nothing gets done, and a lost decade or more of scraping along the bottom follows. Not Latvia- these are some serious people.
RealTime Economic Issues Watch | Euro Countries (and the IMF) Can Learn from Latvia’s Economic Success
Political suicide followed....oh no wait.......Remember that in 2008–09, Latvia lost 24 percent of its GDP. It was heading toward a budget deficit of 19 percent of GDP in 2009 without a program of radical austerity................
One-third of the civil servants were laid off; half the state agencies were closed, which prompted deregulation; the average public wage was cut by 26 percent in one year. But this was a socially considerate program. Top officials were hit more, with 35 percent in wage cuts, while in the end pensions were not cut. In particular, public servants were no longer allowed to sit on state corporate boards and earn more than from their salaries, a malpractice that is still common in many European countries. The government exposed high-level corruption. Yet, many schools and most of the hospitals were closed.
This was a truly front-loaded program. Of a total fiscal adjustment of 17 percent of GDP, 9.5 percent of GDP was carried out in 2009. Two-thirds of the adjustment was expenditure cuts that are more easily executed in a crisis, and only one-third revenue increases, mainly through consumption taxes. The low corporate profit tax of 15 percent was maintained to stimulate business. Latvia needed international financial support, and fortunately the IMF, the European Union, and neighboring countries did both commit and deliver on time...............................
But....but....but.....surely the economy is a total basket case.........Despite all these huge sacrifices, the center-right coalition government of Prime Minister Valdis Dombrovskis, who took his country through this arduous crisis, was reelected twice in parliamentary elections in 2010 and 2011. The big losers were the oligarchic parties that had ruled Latvia on the way into the crisis and ignored massive overheating.
So hang on.....they tackled the problem head on and are recovering? But.....but.......that's just not possible. Surely we are wiser. After all, we wouldn't want to end up like Iceland or Latvia, would we? Surely we are better off being like those titans of stability, Japan and France?Latvia’s economy continues to recover strongly. Following real GDP growth of 5.5 percent in 2011, growth is expected to exceed 5 percent again this year despite recession in the euro area. Labor market conditions are improving. The unemployment rate fell from 16.3 percent at the beginning of the year to 13.5 percent at the end of the third quarter, despite an increase in participation rates. Real wage growth remains restrained. Consumer price inflation has declined sharply, easing to 1.6 percent at end-October after peaking at 4¾ percent in mid-2011. Robust export growth is expected to keep the current account deficit at about 2 percent despite recovering import demand.