The Economic Crisis in Latvia: A Success Story?

Vyačeslavs Dombrovskis (member of the Latvian Parliament)

Latvia’s economic crisis will likely enter economics textbooks as one of this century’s most striking and controversial episodes. Some observers, most notably Anders Aslund, herald it as a success story, an example of how a democracy (!) can overcome a deep economic crisis by defying conventional wisdom, implementing one of the most decisive fiscal adjustments (around 15 percent of GDP) and refusing to devalue its currency. Other observers, such as Paul Krugman, point to the extraordinary recession, which comes second only to the Great Depression of the 1930s. The figures are as follows. Latvia’s GDP declined by 21 percent from 2007 to 2010, unemployment peaked at 20.7 percent, real estate prices fell peak to trough by about 60 percent, about 10 percent of the population emigrated during the last ten years, and Latvia’s poverty rates are among the highest in Europe. Clearly, Latvia’s experience raises a number of important questions. Was the extent of the preceding macroeconomic imbalances largely to blame for the deep recession? Or, was it the government policies? Was internal devaluation a sound decision? What lessons does Latvian experience offer to other countries, notably other troubled Eurozone economies? During the last few years the speaker has been an Assistant Professor of economics at Stockholm School of Economics in Riga, an active blogger and commentator on economic policy issues in Latvia, and, as of recently, a member of Parliament and one of leading politicians in the newly created Reform party. His presentation will combine these three perspectives to offer a critical assessment of the Latvian experience with the crisis.

Keyword: Vyaceslavs

Comments are closed.