The Cabinet of Ministers headed by Valdis Dombrovskis was approved by Saeima’s vote on March 12, 2009 in circumstances when the economic crisis and insolvency of the country had become a reality. ”The Government has accomplished its most important tasks – prevented insolvency of the country, overcame the most critical point of economic crisis, and stabilized the financial and economic system, which is a necessary basis for further work on increasing the national competitiveness and restoring economic activity. This difficult task was achieved without very serious social tensions, although not without serious decisions in the social sector”, acknowledges V.Dombrovskis speaking about the year of work of the Cabinet of Ministers.
Reputation of Latvia in the financial markets
Successful reduction of budget expenditures in 2009 and adoption of the 2010 budget that was coordinated with international lenders has ensured rapid decline in risk perception and improvement of situation in the financial markets. The State Treasury successfully refinances its internal debt, the demand for government promissory notes is increasing, the interest rates are falling - 6-month profitability rate of the government promissory notes for March was 8.1%, and on 18 February it was already 4.1%.
Main lines of activity to increase national competitiveness
One of the medium-term objectives is improvement of national competitiveness and restoration of economic activity which provide for stabilization of both, the financial system and economy. The work was started three main areas:
Confidence of the international community in determination of the Latvian Government to fulfill its international obligations, especially against the European Commission and the countries which have reached an agreement on the loan, contributed and will contribute significantly to economic recovery.
“2010 is the year of parliamentary elections. Therefore, the Government activities before the elections should be particularly responsible, without populistic and economically unjustified decisions. Now, when the first signs of economic stabilization emerge but the economic crisis is still far from being overcome, it is important to proceed with reforms that were started and ensure an open, intensive communication with the public by explaining and justifying the meaning and essence of any major government decision.”, emphasizes V.Dombrovskis.
Measures for revival of economy
One of the most important and priority tasks from the very first days of establishment of the Government has been economic recovery which is being actively realized disregarding the limited financial resources. Currently funding of business promotion and development during the crisis, as well as other forms of support are available under more than 20 aid programs. Overall, until the year 2013, the Ministry of Economics has transferred co-financing of the EU and state budget of more than LVL 582 million to the support measures, in addition providing a substantial private financing. The measures of economy heating include training, innovations, financial instruments, promotion of entrepreneurship, energy efficiency, as well as tourism.
Employment and reduction of unemployment
The consequences of economic crisis in social area has hardest hit the employment. The unemployment rate in 2009 has increased sharply and in 2010 it may reach 20% (16.9% in 2009), therefore the Government has supported allocation of additional funding of LVL 27 million for implementation of active employment measures in 2010, redistributing the funding of the European Social Fund and attracting the necessary funding from the state budget. As a result, in 2010 more than additional 72 thousand unemployed persons could be enrolled in employment promotion activities. Overall in 2010 with the support of the ESF and national budget more than 110 thousand unemployed people or 55% of the total number of unemployed will be able to engage in such employment activities, during which a person receives financial assistance. In 2009, on the assignment of the Prime Minister a concept for support of micro–enterprises was developed, approved and currently is being implemented, thus promoting individual and family business, which in present circumstances can ensure a living for the unemployed and create new jobs when the economic situation improves and the business expands.
Elaboration of the 2011 draft budget
”The present Government shall ensure that the newly elected parliament receives a qualitative material that has been discussed with the social partners and the society, as well as clear and understandable information about measures of further fiscal consolidation,” emphasizes the Prime Minister. The key fiscal measures according to obligations undertaken by Latvia is to ensure the budget deficit which does not exceed 8.5% of GDP in 2010, continue austere fiscal policy by balancing spending and revenues, strengthen regulation and supervision of the financial sector, ensuring stability and reliability of financial institutions.
Taxation policy and fiscal discipline
In 2010 after discussions with social partners a document on medium term taxation policy will be drafted with the aim to ensure stability and predictability of the financial system. The Prime Minister considers that the main targets during implementation of further changes to taxation policy is predictability which according to the agreement reached in the Reform Management Group will be realized ensuring that every significant change to taxation policy enters into force a year after adoption. Such stability will provide additional guarantees that the investment environment of Latvia will become attractive and mainly in the Baltic region. The Prime Minister considers that it is important to continue work on fiscal discipline also after overcoming the crisis. V.Dombrovskis:”Experience of the previous years has shown that very often, the macroeconomic stability and basic principles of economic cycles are forgotten under the populistic pressure. Therefore, a draft law on fiscal discipline should be developed, which will set out general principles for anti-cyclic fiscal policy and promote sustainable economic growth, limiting the amplitude of fluctuations in government spending and improving the medium-term budget planning, for example by setting medium-term financial balance in the annual state budget law, as well as improving responsibility of the Cabinet and other levels of public administration.” The draft law will provide the deficit level for the transition period until 2012 in order to comply with the agreement with the International Monetary Fund and the European Commission and introduce the euro by 2014.
The draft law on fiscal discipline is currently in elaboration phase in the Ministry of Finance and will be submitted to the Cabinet of Ministers and the Saeima in July.
Social security network
In order to mitigate the negative social impact caused by unfavorable economic conditions and ongoing sectoral reforms, the Cabinet has approved, and in cooperation with the World Bank launched a social security network strategy providing extraordinary security measures in the area of welfare, education and health care. In 2009 LVL 15 million and in 2010 already LVL 45 million were provided for implementation of the strategy.
Reduction public administration functions
“Complicated economic situation and the necessity to implement substantial consolidation of the state budget have promoted structural reforms that have been delayed for unjustified reasons in both, education, health sector and public administration providing an opportunity to assess efficiency, rationality and even necessity of each system. The crisis provides an opportunity to the country to shift from the ”bubble economy” that was based on irresponsible spending of cheap credit resources to responsible welfare earned by ourselves. Where the money’s run out, the reforms start!”, emphasizes the Prime Minister assessing the role of role and progress of structural reforms.
During elaboration of the draft state budget 2010, the assessment of functions of the ministries and subordinate institutions and agencies was performed. In total, more than 1050 state functions and tasks were identified and assessed. As a result of reduction of functions the total economy comparing beginning of the 2010 with the beginning of the year 2009 was LVL 719 million incl. economy acquired as a result of delegation of functions - more than LVL 5 million, as a result of suspending implementation of functions - LVL 40 million; and economy of more than LVL 671 million as result of optimization of functions by reorganizing the public administration institutions and implementing other qualitative changes.
The photos reflecting the year of Prime Minister Valdis Dombrovskis are available in the Flicker photo album of the State Chancellery: http://www.flickr.com/photos/valstskanceleja/sets/72157623428804979/
Līga Krapāne
Press Secretary to the Prime Minister
Phone 67082865/29480299
E-mail: liga.krapane@mk.gov.lv
Laine Kučinska
Deputy Head
Communications Department
Phone: 67082905 / 29457329
E-mail: Laine.Kucinska@mk.gov.lv
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