Economic Turmoil Of Latvi A Case Study Presenting The Economic Challenges With Latvia
872 Words4 Pages
Economic Turmoil in Latvia is a case study presenting the economic challenges with Latvia. Latvia is a country of approximately 2.5 million people, and is part of the Baltic States. When the Soviet Union collapsed, Latvia who is one of the three Baltic States gained its independence. Latvia was doing well and was experiencing fast economic growth power-driven by a vibrant private sector (Hill, 2014). The following case study will elaborate more on Latvia economic condition and present questions about the case study.
In 2004 the country joined the European Union and pegged it currency, the lat, to the value of the euro (Hill, 2014). Latvia goal was to later adopt the euro. Latvia used a variation of a system known as a currency bond, in order to sustain parity against the euro. Warnings started to surface in 2006 indicating the Latvian economy might be in trouble (Hill, 2014). The economy was thriving because of inflow of foreign money into Latvian banks, mostly from Russia. These funds were being used to finance lending. It was suggested to the government to restrain lending by raising interest rates. However, these suggestion were ignored, and what the government failed to do…the market did anyway (Hill, 2014).
It was in 2008 that the boom unraveled as the global economic crisis of over evaluation of U.S. properties, expanded into other countries around the world. Latvia however, started to experience trouble when Parex, the nation’s largest bank, exposed it was in finance