The credit bubble continued to expand and the realization that it was built upon unrealistic expectations for economic growth came too late. The massive lending that took place in a matter of a couple of years increased consumption, yet it did not equally improve the future prospects of production. In late 2007 and in 2008, it became apparent that the economy was overheating.
The fall of the â€˜â€˜Baltic Tigerâ€™â€™
The fast growth of the economy created significant macroeconomic imbalances. The consumption boom in the country built grounds for the strong growth of imports, which led to a massive current account deficit of a staggering 25 percent of GDP already in 2006 (Hansen, 2010).The overheating housing market was accompanied by imbalance and tensions in the labour market as well. The demand for labour in the booming economy was high, yet the supply was decreasing due to large-scale emigration after joining the EU in 2004. Thanks to such pressure, Latvia hit another record number for the EU: an annual wage increase up to 30 percent. The wage growth by far exceeded productivity growth, forcing companies to increase prices, leading to 17.9 percent y-o-y price inflation in May 2008.
As a consequence, Latviaâ€™s currency sharply appreciated, sending worrying signals about the decreasing competitiveness of the country (Hansen, 2010). These large macroeconomic imbalances, worries about sustainability of credit growth rates, inflation, property price bubble as well as the high risk of deterioration in the quality of loan portfolio motivated Scandinavian banks to finally tighten the lending standards (Klyviene and Rasmussen, 2010). Once the credit from the Nordic countries froze and housing prices started to fall, construction and retail sectors stagnated. Pessimism replaced unwarranted optimism, negatively impacting consumption and suppressing the entire economic activity (Hansen, 2010).
The â€˜â€˜Baltic Tigerâ€™â€™ crashed, and it crashed hard. The most rapidly developing economy among the EU countries, experiencing a double-digit growth of 12.2 percent in 2006, was shaken by the steepest GDP contraction of 18 percent in 2009.Unemployment peaked at 20.7 percent, consumption dropped by 22.4 percent and gross fixed capital investments plunged by 37.7 percent.
In December of 2008, the IMF provided a e1.68 billion rescue package to help Latvia fill in the gapping hole in its budget deficit and calm its capital markets. Even though the injection may have convinced the markets for a while, in June 2009 the Central Bank of Latvia had to sell almost e1 billion in exchange of Lats in order to defend the currency.
Is the government to blame?
Even though before the accession to the EU Latvia was undergoing a period of intensive reforms, due to successful growth of the economy the policy makers lost the urgency to reform as everything already seemed to be heading in the right direction (Erixon, 2010). Due to the currencyâ€™s peg to Euro, the monetary policy in Latvia was restricted; hence the supply of credit was out of control. Therefore, only fiscal policy tools could be used to regulate the economy. It seemed, however, that instead of using this tool wisely the government further fuelled overheating through massive public spending (Klyviene and Rasmussen, 2010).
Tax revenues were growing as the economy expanded. Instead of following the standard counter cyclical fiscal policy in a time of favourable macroeconomic environment and decreasing fiscal expenditure in order to accumulate a budget surplus, Latvia chose to follow a pro-cyclical fiscal policy (Hansen, 2010). Government spending relative to GDP increased from 35.6 to 37.7 percent over 2005-2007 (Karlsson, 2009). Not surprisingly, such pro-cyclical fiscal policy increased the demand for credit, consumption and supported the biggest boom in the EU. Excessive government spending did not allow accumulating a budget surplus which could serve as a buffer in times of crisis.
In 2007 the Latvian government adopted a â€˜â€˜Stabilization planâ€™â€™ aimed at developing the budget surplus, reviewing effectiveness of government spending and implementing reforms necessary for increasing long run productivity and competitiveness (Gerhards, 2008). The plan came too late. By 2009 even the Latvian president Valdis Zatlers was questioning the appropriateness of the actions taken and the fate of the country: â€˜â€˜We had no political will, we lacked economic and entrepreneurial foresight, the government was pathetic. Now we face the existential question: will Latvia survive?â€™â€™ (Hansen, 2009).
Policy decisions today
A. Should the Lat be devalued. . .
For countries with a fixed exchange rate regime, devaluation is roughly the only monetary policy tool that can be considered for targeting economic stability. A deliberate devaluation of the Lat would make the currency cheaper. Consequently, imports would become more expensive and exports to other countries â€“ cheaper, thus reducing the trade deficit. By the end of 2009, the international community was voicing a strong opinion that Latvia should devalue. For some economists (including Professor Paul Krugman) it looks like a case of Argentina: a fixed exchange rate, an excessive current account deficit, substantial foreign bank lending, and a burst of an overheated economy. They believe that there is no other way for Latvia to regain competitiveness without a devaluation.
Devaluation, however, might turn out to be very costly and may not be as effective as intended. During the credit boom, Scandinavian banks provided cheap capital with considerably lower interest rates for loans denominated in Euro as compared to loans in Lat. As a consequence, in 2008 around 70 percent of bank deposits and nearly 90 percent of loans were issued in Euro. Devaluation of the Lat would thus pose a serious risk of insolvency.
B. . . .or should Latvia take the â€˜â€˜hard roadâ€™â€™ instead?
As an alternative to external devaluation, Latvian politicians have started to talk about an â€˜â€˜internal devaluationâ€™â€™: keeping the currency fixed to Euro, but undergoing structural reforms to improve productivity and public sector efficiency, and reducing wages. While currency devaluation can happen overnight, internal devaluation may take months or years of structural reform and may lead to public unrest.
As a matter of fact, the government started to introduce austerity measures already in 2007 12 percent (or 115) state schools were closed, because budget financing was shifted from inputs-based (number of teachers) to output-based (number of students). In 2008 the government abolished half of state agencies, which reduced the number of civil servants by 30 percent. In October 2009, the government slashed budget deficits to meet targets imposed by the European Union for an additional e7.5 billion support package. About 75 percent of the expenditure cuts were thus done in 2009, bringing some positive hopes that austerity measures were carried in time.
Get Professional Assignment Help Cheaply
Are you busy and do not have time to handle your assignment? Are you scared that your paper will not make the grade? Do you have responsibilities that may hinder you from turning in your assignment on time? Are you tired and can barely handle your assignment? Are your grades inconsistent?
Whichever your reason is, it is valid! You can get professional academic help from our service at affordable rates. We have a team of professional academic writers who can handle all your assignments.
Why Choose Our Academic Writing Service?
- Plagiarism free papers
- Timely delivery
- Any deadline
- Skilled, Experienced Native English Writers
- Subject-relevant academic writer
- Adherence to paper instructions
- Ability to tackle bulk assignments
- Reasonable prices
- 24/7 Customer Support
- Get superb grades consistently
Online Academic Help With Different Subjects
Students barely have time to read. We got you! Have your literature essay or book review written without having the hassle of reading the book. You can get your literature paper custom-written for you by our literature specialists.
Do you struggle with finance? No need to torture yourself if finance is not your cup of tea. You can order your finance paper from our academic writing service and get 100% original work from competent finance experts.
While psychology may be an interesting subject, you may lack sufficient time to handle your assignments. Don’t despair; by using our academic writing service, you can be assured of perfect grades. Moreover, your grades will be consistent.
Engineering is quite a demanding subject. Students face a lot of pressure and barely have enough time to do what they love to do. Our academic writing service got you covered! Our engineering specialists follow the paper instructions and ensure timely delivery of the paper.
In the nursing course, you may have difficulties with literature reviews, annotated bibliographies, critical essays, and other assignments. Our nursing assignment writers will offer you professional nursing paper help at low prices.
Truth be told, sociology papers can be quite exhausting. Our academic writing service relieves you of fatigue, pressure, and stress. You can relax and have peace of mind as our academic writers handle your sociology assignment.
We take pride in having some of the best business writers in the industry. Our business writers have a lot of experience in the field. They are reliable, and you can be assured of a high-grade paper. They are able to handle business papers of any subject, length, deadline, and difficulty!
We boast of having some of the most experienced statistics experts in the industry. Our statistics experts have diverse skills, expertise, and knowledge to handle any kind of assignment. They have access to all kinds of software to get your assignment done.
Writing a law essay may prove to be an insurmountable obstacle, especially when you need to know the peculiarities of the legislative framework. Take advantage of our top-notch law specialists and get superb grades and 100% satisfaction.
What discipline/subjects do you deal in?
We have highlighted some of the most popular subjects we handle above. Those are just a tip of the iceberg. We deal in all academic disciplines since our writers are as diverse. They have been drawn from across all disciplines, and orders are assigned to those writers believed to be the best in the field. In a nutshell, there is no task we cannot handle; all you need to do is place your order with us. As long as your instructions are clear, just trust we shall deliver irrespective of the discipline.
Are your writers competent enough to handle my paper?
Our essay writers are graduates with bachelor's, masters, Ph.D., and doctorate degrees in various subjects. The minimum requirement to be an essay writer with our essay writing service is to have a college degree. All our academic writers have a minimum of two years of academic writing. We have a stringent recruitment process to ensure that we get only the most competent essay writers in the industry. We also ensure that the writers are handsomely compensated for their value. The majority of our writers are native English speakers. As such, the fluency of language and grammar is impeccable.
What if I don’t like the paper?
There is a very low likelihood that you won’t like the paper.
- When assigning your order, we match the paper’s discipline with the writer’s field/specialization. Since all our writers are graduates, we match the paper’s subject with the field the writer studied. For instance, if it’s a nursing paper, only a nursing graduate and writer will handle it. Furthermore, all our writers have academic writing experience and top-notch research skills.
- We have a quality assurance that reviews the paper before it gets to you. As such, we ensure that you get a paper that meets the required standard and will most definitely make the grade.
In the event that you don’t like your paper:
- The writer will revise the paper up to your pleasing. You have unlimited revisions. You simply need to highlight what specifically you don’t like about the paper, and the writer will make the amendments. The paper will be revised until you are satisfied. Revisions are free of charge
- We will have a different writer write the paper from scratch.
- Last resort, if the above does not work, we will refund your money.
Will the professor find out I didn’t write the paper myself?
Not at all. All papers are written from scratch. There is no way your tutor or instructor will realize that you did not write the paper yourself. In fact, we recommend using our assignment help services for consistent results.
What if the paper is plagiarized?
We check all papers for plagiarism before we submit them. We use powerful plagiarism checking software such as SafeAssign, LopesWrite, and Turnitin. We also upload the plagiarism report so that you can review it. We understand that plagiarism is academic suicide. We would not take the risk of submitting plagiarized work and jeopardize your academic journey. Furthermore, we do not sell or use prewritten papers, and each paper is written from scratch.
When will I get my paper?
You determine when you get the paper by setting the deadline when placing the order. All papers are delivered within the deadline. We are well aware that we operate in a time-sensitive industry. As such, we have laid out strategies to ensure that the client receives the paper on time and they never miss the deadline. We understand that papers that are submitted late have some points deducted. We do not want you to miss any points due to late submission. We work on beating deadlines by huge margins in order to ensure that you have ample time to review the paper before you submit it.
Will anyone find out that I used your services?
We have a privacy and confidentiality policy that guides our work. We NEVER share any customer information with third parties. Noone will ever know that you used our assignment help services. It’s only between you and us. We are bound by our policies to protect the customer’s identity and information. All your information, such as your names, phone number, email, order information, and so on, are protected. We have robust security systems that ensure that your data is protected. Hacking our systems is close to impossible, and it has never happened.
How our Assignment Help Service Works
1. Place an order
You fill all the paper instructions in the order form. Make sure you include all the helpful materials so that our academic writers can deliver the perfect paper. It will also help to eliminate unnecessary revisions.
2. Pay for the order
Proceed to pay for the paper so that it can be assigned to one of our expert academic writers. The paper subject is matched with the writer’s area of specialization.
3. Track the progress
You communicate with the writer and know about the progress of the paper. The client can ask the writer for drafts of the paper. The client can upload extra material and include additional instructions from the lecturer. Receive a paper.
4. Download the paper
The paper is sent to your email and uploaded to your personal account. You also get a plagiarism report attached to your paper.
PLACE THIS ORDER OR A SIMILAR ORDER WITH US TODAY AND GET A PERFECT SCORE!!!