Case Study 5
Economic Turmoil in Latvia
September 11, 2014
General Description and Central Issue of the Case
The Republic Latvia is a country of 24,938 square miles on the Baltic Sea, with 310 miles of shoreline. The country shares borders with Lithuania, Belarus, Estonia, and Russia. Latvia, Lithuania, and Belarus are three Baltic States that gained independence after the fall of the Soviet Union (Hill, 2013). Latvia declared independence on May 4, 1990. The population of Latvia is 2,165,165 with an ethnic makeup of Latvian 61.1%, Russian 26.2%, Belarusian 3.5%, Ukrainian 2.3%, Polish 2.2%, Lithuanian 1.3%, other 3.4% (CIA, 2014). Natural resources include peat, limestone, dolomite, amber, hydropower, timber, and arable
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dollars. Currency speculators were adding pressure to the situation by gambling that Latvia would devalue the currency and have to sell the Lats short. The Latvian central banks were forced to enter the foreign currency exchange market and buy Lats to bolster the currency peg against the Euro. In two months’ time the country had gone through 20% of their total foreign exchange reserves (Hill, 2013).
Latvia’s Goals, Constraints, and Relevant Alternatives The countries’ goals would be the same for any country experiencing economic distress. Latvia would like to capitalize on the strong economic growth they are experiencing post-2008. With substantial financial assistance from the IMF, the EU, and other international donors to defend the Latvian currency’s peg to the Euro, the Latvian economy is remaining stable, not showing signs of improvement, but not getting worse. Collectively, the assistance amounted to 9.3 billion Euros. Latvia would like to make a full economic recovery, and the government does not want the Lat devalued against the Euro. This scenario would have created more economic hardship for Latvians.
There were constraints placed on Latvia by the IMF, the EU, Sweden, and Finland, the conditions imposed on the emergency funding required significant changes in the Latvia economic policy. Those conditions included interest rate increases, wage
Two other changes that were made by the IMF are wage guidelines and high interest rates. Wage guidelines reduce the cost of labour, which was done as an incentive to hire more workers and in turn have more production. High interest rates are supposed to reduce domestic
The economic crisis that hit the country took many jobs or people had their hours cut. With this situation happening, many people were finding themselves short on their mortgage payments and needing to go into foreclosure or having a short sale on their homes. Either option the homeowner chose or had chosen for them, they found themselves with poor credit and no way to become homeowners again. However, most wait times before was a minimum of two years up to seven years before that previous owner could be eligible for traditional loans.
One of the worst economical events since the Great Depression, the 2008 stock market crash was an occurrence that will go down in American history. This catastrophic event within the United States had many circumstances leading up to it that are monumental in of themselves. Effects of this crash left many people homeless, jobless, and most importantly, hopeless of ever recovering from such a devastating time. Just receiving a job interview was nearly impossible and getting food on the table was becoming harder and harder to many Americans. One thing is for sure and that is the 2008 stock market crash was extremely hard to go through but something even better to say you survived.
The Greek Government beloved that if they adopted the Euro that they then could use it as
Perhaps you may wish to turn your attention to the Baltic region. Baltic is not a term that refers to a particular country. Rather, it comprises of many countries such as Latvia, Lithuania, Estonia, Russia, Poland and Scandinavia.
The Economic crash of 2008 had effects on nations around the globe. One of the nations that experienced the most difficulties was Iceland. In late September of 2008 the Iceland government had to purchase the nations 3rd largest bank from going bankrupt. “Iceland…was the first country to really suffer. Its three major banks collapsed in the same week in October 2008, and it became the first developed country to request assistance from the IMF in 30 years.” (Danielsson). The entire government almost suffered from
The near-collapse of the financial system in the United States was the most substantial economic crisis in the U.S. since the Great Depression of the 1920s and 1930s. Since the crisis began in late 2007, more than 6 million Americans had lost their jobs, large and important financial institutions failed, and trillions of dollars in savings and retirement accounts had been lost. It is generally accepted that problems in the United States housing market are at the root of the current United States and global financial crisis. Regardless the causes and responsibilities, what is clear is that the result is a seriously weakened global financial system. It is important to thoroughly study the causes and consequences of the U.S. financial crisis and
The way of that emergency has uncovered essential vulnerabilities inside states and far and wide. Those vulnerabilities were taken into account a blend of obligation and influence, intra-budgetary increase and securitization, neurotic basic advancements in individual economies, and unsustainable asymmetries in worldwide capital gathering, making lopsided characteristics in exchange, venture and utilization elements (Morgan, 2008, 2009; Wade, 2008). For example, involving dynamic reappraisals the emergency was 'moderate smoldering', conveyed by a progression of basic occasions. The outcome, on the other hand, continued an expository movement towards a negative result which is monetary deleveraging/ adjustment/ stoppage/downturn. There are two key reasons why the logical line of impediments was taken after. The principal key reason is that the framework knows the behavioral impacts of how awful or more regrettable the framework would be influenced. Additionally, both of the reason are connected with one another from multiple points of view. The second key explanation behind an explanatory line of impediments in view of the scale and scope of developing emergency was devalued. This devaluation conceived the useless framework from which emergency then apparent. In light of these two reasons deterioration and
The separate republics that were facing their own ethnic problems now had to cope with the fact that their citizens were going bankrupt. “From 1989 through September 1990, more than a thousand companies went into bankruptcy. By 1990 annual GDP growth rate had shrunk to –7.5 percent. In 1991, GDP declined by a further 15 percent, while industrial output shrank by 21 percent.” (Kiss). Within all of this more than half of the most prominent banks in Yugoslavia had gone bankrupt, losing all their clients money and anything financial of theirs. 1.3 million workers had lost their jobs by this time (World Bank). The governments of the individual republics refused to pay the preposterous federal taxes or import fees, that had been set up to try to restore some order within the national government. Some republics had access to bill-printing facilities and gave themselves short credit, without the federal government’s knowing. Previously coming into this predicament, “the past 20 years Yugoslavia had a 17% increase in their external debt every year”(Rasjic). The federal government was still taking money from outside countries knowing that they might not be able to pay it back, leading to an eventual collapse of the economy. The US and other countries felt a duty to help since Yugoslavia was a new country and many of the emigrants of Yugoslavia came to the Western countries. Despite the steadily rising inflation of foreign funds as loans,the Yugoslav economy achieved only a slight, if that growth. However, even this modest growth was not sustainable without continued foreign aid. In the 1980s and 1990s, was the only time when the true Yugoslav economy was seen by outside countries and the rest of the world. Just like an alcoholic must face the reality of his addiction, so did Yugoslavia, they faced the reality of the nothingness of Yugoslav economy without external
A country who’s economy was devastated by the monetary exports demanded of them by the second world war, Greece has shown great financial fluctuation and vulnerability within the last 80 years, resulting in one of the most disputed economic records in the history of the European Union. Dubbed the ‘Greek Economic Miracle’, Greece showed great resilience throughout the 1950’s and 1960’s, with credit to their superior food trade and shipping industry, continuing to produce high levels of economic growth in contrast to others that had also been affected by the war. With the Treaty of Accession (1979) entering into force on 1st January 1981, Greek’s commitment to the European Communities (European Union) proved pivotal regarding it’s controversial qualification into the Eurozone in 2000. Owing to this, in an attempt to recover the unstable foundations of its economy, Greece has since been subject to various regulations and measures of austerity, leaving what was once a highly commended country both financially and socially, in a deplorable state of desperation.
Greece’s government trying to impose stringent austerity measures such as tax hikes and salary and pension cuts that cause the economy to contract. Besides, the country has given another 6.8 billion euros in July from the European Union,
In this research paper, we will be covering the causes, financial repercussions and social implications of this crisis. We will also be examining the methods used by the Greek government to rescue the economy. To conclude, we will discuss possible resolution measures and objectively forecast the future
The financial headlines of 2012 were prevalent with the tribulations of the Greek economy. Its problems, in the eyes of many of the other nations of the euro zone, were not only negatively impacting the prosperity of the Greeks, but also the viability of the European Union. The country as a whole requires a major restructuring. Not only are drastic changes needed in financial and economic policies, but the Greeks need to understand their attitude of government entitlements cannot be sustained. The mismanagement of the Greek economy is also evident in its place in the global market community. It has not found the path that a county needs to follow to become an active member of the vibrant,
On January 1st 1981 Greece joined the European Communities ushering in a period of sustained growth. The countries widespread investments on infrastructure coupled with funds from the European Union led to a sharp increase in revenue from tourism and the service sector. This helped the country reach historical highs in their standard of living. By 2001 Greece had adopted the Euro and in the proceeding 7 years the GDP per capita went from $12,400 in 2001 to $31,700 in 2008, an increase of 156%. The Greek government was encouraged by the European Central Bank and other private banking institutions to undertake loans to fund foreign infrastructure projects like those related to the Olympic Games of 2004. When the financial crisis
mutual debt. After a few months the restrictive policy collapsed due to a mountain of interenterprise debts, pressure from industrial circles, protests of a confused and impoverished