Analytics, Crisis, EU – Baltic States, Financial Services, Latvia

Einars Repse.

"The economic crisis teaches us that the state must be able to carry out its functions much more rationally, spending its resources more sparingly and working in a much more efficient way," Repse believes, as the Finance Ministry's spokesman Aleksis Jarockis informed LETA.

Also in 2010, the Finance Ministry will strive to make sure that the state lives within its means, and use the crisis as an opportunity for creating preconditions for the further development of the country, the minister said.

In Repse's view, as the crisis makes the business environment and the economic situation change, also state administration must be able to adapt to the current situation, to plan and adjust its actions in line with the new conditions, implementing the principles of good governance at the same time.

As soon as Latvia balances its expenditures and revenues, in two to three years' time, the tax system will have to be revised once again: social tax and income tax should be lowered first of all, the minister points out.

The minister points out that a dramatic 18% plunge in the gross domestic product forced Latvia to borrow from the international financial markets and revise its budget structuring principles.

"Undeniably, the burst of the so-called inflated bubble was the reason for the fall of the GDP, not contraction of the real economy: production volume has not decreased so steeply," the minister explains.

"The global economic crisis has also affected Latvia, it affects each organization, each institution, each entrepreneur and each citizen of our country," Repse said, admitting that the former policy, to move ahead fast and without thinking, has proved to be short-sighted and unsuccessful.

In minister's view, the government made a great mistake by failing to balance its budget in the years of abundance: it lived beyond its means and created no reserves. Estonians did the opposite and therefore Estonia can cope with the current crisis much better than Latvia.

However, drawing up the budget plan for 2010, the government's decisions were well thought-out and aimed at overcoming the crisis and creating preconditions for recovery of the state economy, although this was done at the cost of several unpopular decisions, Repse points out.