Geopolitical challenges require closer collaboration

  • Cooperate more to grow more
  • Income inequality and poverty: is a higher minimum wage the best answer?
  • Taxes in the Baltics: which way forward?


Cooperate more to grow more

Russia is in the midst of a recession, while the rest of the Baltic Sea region sees its economy expanding. The Baltic Sea index (BSI) points to somewhat closer institutional integration within the region, excluding Russia (which is drifting away), and marginal improvements in competitiveness. Yet, developments are uneven, and the region’s countries are in different stages of their business cycles, implying different political and economic policy agendas. Politicians falling behind the curve in addressing structural problems and reducing overheating risks, as well as an unprecedented refugee influx, pose risks to growth and political stability. More economic integration and policy cooperation – within the region, with the rest of the EU, and globally – is necessary to reduce these risks and boost sustainable medium-term growth. The BSI shows that progress in countries that are catching up from lower levels has slowed, and there is a lack of progress for the most advanced ones. There is something to think about and to do for everybody.

Income inequality and poverty: is a higher minimum wage the best answer?

Income inequality may be both the consequence of underdevelopment and the cause of lower growth potential, as well as the general prosperity of the society. In terms of income inequality and poverty, the three Baltic countries are at the lower end of the EU. There has been remarkable progress since the EU accession, but much is still to be done. Most recently, governments have responded by vigorously increasing minimum wages. This can raise incomes of the poor and shrink the grey economy by legalising part of the wage income. But if pushed too far, it destroys lower-skilled jobs and dents a country’s competitiveness. There are other policy choices available. One is raising the nontaxable threshold for low earners. The government revenue losses would be tangible, but not unmanageable. But the key policy option is to strive to improve the quality and accessibility of education. To create competitive economies and prosperous societies, governments’ task should be to ensure the equality of opportunity, not the equality of outcome.

Taxes in the Baltics: which way forward?

New budget deficit rules, a moderate growth environment, calls for more public spending, and a willingness to safeguard labour cost competitiveness will force the governments to improve their tax systems. Taxes should be viewed as a system that should be neutral and fair. Simple tax systems are preferred to complex ones, e.g., multiple exemptions make taxes less transparent, difficult to enforce, and easier to evade. To start with, all three countries need to clamp down on tax evasion, and here it seems that Latvia and Lithuania have more ground to cover. But it is not only administrative and criminal measures that should be used to reduce tax evasion. For example, the taxation of residential real estate is impossible to evade (i.e., property cannot be hidden), it is progressive (i.e., more affluent individuals tend to have more expensive real estate), and it has no direct negative impact on business costs and competitiveness. Raised revenues from such sources could be used not only to reduce tax evasion but also to shift tax burden away from labour to other tax bases that does less harm to economic growth.

Source: Swedbank
See report here

Lithuania asks World Bank to reclassify Baltic states as developed countries

Lithuania’s Finance Minister Rimantas Šadžius has once again called upon the World Bank’s president to upgrade the status of the three Baltic states in this institution from emerging to developed countries.

Since the restoration of independence in the early 1990s, the World Bank had been a steady and important supporter of the efforts made by Lithuania, Latvia and Estonia in order to reorganize and strengthen the region in economic and political terms, the minister said at a meeting in Helsinki on Wednesday.

Read more from Delfi.lt

Estonian businessman claims 51 mEUR from Latvian state

Estonian businessman Indrek Kuivallik has gone to court against the Latvian state, and is claiming 51 million euros in compensation for his investments, writes Äripäev.

„Suing a state is an extreme measure, sort of last resort,” said Kuivallik who is founder of Estonian cable TV company Starman.

The dispute is between Winergy Ltd that is controlled by Kuivallik and owns Latvia’s largest wind farm, and a local bank Norvik Banka from which Winergy borrowed 18.6 million euros in 2012.

Read more from BBN

Foreign Investors’ Council in Latvia elects new board

Foreign Investors’ Council in Latvia (FICIL) has elected a new management board headed by Enrique Garcia, CEO of Cemex Latvija.

Garcia is taking over from Jerry Wirth, representative of the American Chamber of Commerce in Latvia.

The board will have two vice chairwomen: Ginta Cimdina, CEO of Fortum Latvija, and Zlata Elksnina-Zascirinska, Country Managing Partner at PWC.

Chairman of FICIL’s Board Enrique Garcia says: “We commend the government on maintaining the stable economic growth and financial discipline needed for the full integration to the European Union with the adoption of the Euro. Also, recognition is well deserved for introducing reforms, which have resulted in Latvia’s increased performance in the Global Competitiveness Report and Doing Business Index. Latvia has been able to “stay ahead of the curve” and differentiate itself from other economies still struggling after the crisis.

Nevertheless, last year in the context of the Baltic Development Forum the lack of strong leadership was recognized as one of the main obstacles to more healthy growth in general for the economy and in particular for FDI in Latvia. Specifically, foreign investors pointed out that Latvia’s main actors in government should not only set out a vision on where the country needs to go, but most importantly should capable of reaching consensus to make decisions and implement the actions needed with the appropriate accountability.

Latvia has adopted a variety of policies and introduced regulation under the aegis of fostering a better business environment and national competitiveness: National development plan, Industrial policy and related documents, Policies for regional development and territorial planning, Public sector reform etc.

Implementing the “policy talk” is expected, amongst others, to raise Latvia’s attractiveness to FDI, being at least in theory an important element for healthy economic growth. During this year’s High Council meeting, FICIL would like to address the gap between “talk and action” to achieve concrete and coherent results.”

Read more from FICIL website

Eesti Pank will exchange Latvian lats for euros

Lat banknotes can be exchanged for euros in Eesti Pank from 2 January until the end of February at the central exchange rate and at no charge. Latvian coins cannot be exchanged.

On 1 January Latvia joined the euro area and on that date the euro became the currency of Latvia at the exchange rate of 1 euro = 0.702804 lats.

Latvian banknotes can be exchanged in the museum of Eesti Pank during its opening hours within the daily limit per person and per transaction of 1000 euros. The Eesti Pank Museum is open from Tuesdays to Fridays 12-17 and on Saturdays at 11-16.

Latvian banknotes will be exchanged by all the central banks of the euro area during the next two months.

Lat banknotes and coins can be exchanged at the central rate in bank offices in Latvia until the end of June and in 302 Latvian post offices until the end of March. The Latvian central bank will exchange lats for euros at the central rate with no limits on amounts or on time.

Lats in current accounts in Latvian banks were automatically converted to euros at the central rate without any service fee.

The lat will continue to serve as legal tender for two weeks following the changeover to the euro but from 15 January the euro will be the only legal tender in Latvia.

From the start of this year it will only be possible to exchange kroons for euros in the museum of Eesti Pank.

Source: Bank of Estonia

Eesti Pank will exchange Latvian lats for euros in January and February

 

On 1 January 2014 Latvia will join the euro area and from that date the euro will be used in place of the Latvian lat at the exchange rate of 1 euro = 0.702804 lats. Eesti Pank, like the other central banks of the euro area, will exchange lat banknotes for euros from 2 January until the end of February at no charge.

From 2 January 2014 it will be possible to exchange lat banknotes for euro cash at the central exchange rate and with no service fee in the Eesti Pank Museum during its opening hours. The daily limit per person and per transaction is 1000 euros. Latvian coins will not be exchanged in Eesti Pank.

Lat banknotes and coins can be exchanged at the central rate in bank offices in Latvia until the end of June next year and in 302 Latvian post offices until the end of March. From 1 January the Latvian central bank will exchange lats for euros at the central rate with no limits on amounts or on time.

Lats in current accounts in Latvian banks will be automatically converted to euros at the central rate without any service fee.

The lat will continue to serve as legal tender for two weeks following the changeover to the euro but from 15 January the euro will be the only legal tender in Latvia.

Estonian kroons can still be exchanged in cash handling offices of Swedbank and SEB across Estonia until the end of this year but from 1 January 2014 it will only be possible to exchange kroons for euros in the Eesti Pank Museum.

The Eesti Pank Museum is open from Tuesdays to Fridays 12-17 and on Saturdays at 11-16.

Source: Bank of Estonia

Latvian steelmill insolvent

Latvian steelmill Liepajas Metalurgs that employs about 2,300 workers was filed for insolvency yesterday, Nov 4, after the company’s shareholders refused to invest more funds.

Read more from BBN

Follow

Get every new post delivered to your Inbox.