ilmars rimsevics : standing firm against manipulations with lats'exchange rate article by mr ilmars rimsevics, governor of the bank of latvia, published in the daily diena on 16 february 2007. * * * economists are currently discussing ways to improve the ability to compete of the latvian economy and they are right to do so because it is being undermined by high inflation. morten hansen from the riga school of economics has also devoted this issue a great deal of thought, sharing some of his insights with the readers of the newspaper diena ( 10 february ). the latvian economy is still the fastest growing economy in the european union and that should make us happy because our standard of living is raised. the downside, from the macroeconomic perspective, is that the speed at which we are traveling can be compared to driving at 200 kilometers an hour, because it is accompanied by high inflation, record high prevalence of imports over exports ( current account deficit ), decreased ability to compete, a fast growing foreign debt. for quite a while now, the main problem of the latvian economy has been the overly high domestic demand that exceeds supply ; the economists call it “ overheating ” of the economy. the budget deficit is also too high for this juncture in our economic development : we are not saving for the moment when the pace of the economy will abate. estonia, where the situation is very similar, last year recorded a budget surplus of 3 % of gdp. ) if we fail to have a firm grip on the steering wheel and we dismiss the danger of driving too fast, our breakneck speed can land us in a ditch! we can only regret that mr. hansen has not applied his theoretician ’ s savvy to come to the aid of the latvian economic policy makers : to specify the list of tasks that would allow the excessively rapid development to slow down so that latvia would continue to develop in the long term with a yearly growth of 6 - 7 % instead of running the danger of overheating as is obvious from the estimates of the last quarter of last year. it would have been wonderful if mr. hansen had made use of his teaching skills, which involve the ability to get things across with ease, to remind us that in the marathon distances – in our case, approximating the level of european standard of living – sprinter ’ s tactics are of no use. in such a list, there would be tasks that produce immediate

ventspils port decreased, while the other ports of latvia performed well. vibrant economic activity allows us to project that gdp growth will be higher in the latter half of 2002 ( 5. 5 % - 5. 7 % ) than it was in the first half of the year ; and therefore, real gdp is expected to grow by 5 % in 2002. the year - on - year growth of 10. 0 % in latvia's exports that was observed in the first nine months of 2002 despite weak global economic growth should be noted as a positive development. in the country breakdown, exports grew in all groups, with most rapid growth reported in exports to the united states, sweden, russia and lithuania. exports to the principal trading partner, the european union, rose 6. 9 %. the principal contributors to the growth were exports of prepared foodstuffs, wood, furniture, machinery and mechanical appliances, electrical equipment, and base metals and articles of base metals. with domestic demand remaining high, imports were up by 12. 6 %. as latvia's exports rose more markedly, deficit in the balance of payments current account decreased substantially in july and august. in september, the current account deficit increased again, as imports of goods rose. in the first nine months of 2002, the services surplus was 12. 0 million lats higher than the year before. the increase in the services surplus resulted from rising exports of travel and other services and lower imports of other services. the transportation services surplus declined largely because of a low cargo turnover at the ventspils port. in the first nine months of 2002, the services surplus covered 40. 5 % of the goods deficit. the current account deficit continued to be adequately covered with foreign direct investment ( in the amount of 75. 5 % in the first nine months of 2002 ). if the external and internal economic environment does not deteriorate at the end of the year, the current account deficit for 2002 is likely to remain at 8. 5 % of gdp. the country's fiscal position was still better than the year before. in the first nine months of 2002, fiscal deficit in the general government consolidated budget was 19. 8 million lats ( 2. 2 times higher than the year before, when the deficit amounted to 43. 6 million lats ). the general government consolidated budget was affected by an increase in the local government consolidated budget fiscal deficit, which amounted to 20. 3 million lats. nevertheless, according to the preliminary data released by