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TITLE:  LATVIA ECONOMIC POLICY AND TRADE PRACTICES
DATE:  FEBRUARY 1994
AUTHOR:  U.S. DEPARTMENT OF STATE

                              LATVIA

                     Key Economic Indicators
        (Millions of current lats unless otherwise noted)


                                  1991 /5   1992 /5   1993 /1
Income, Production,
 and Employment

Real GDP (1990 prices) /2            57.3      37.9      22.7
Real GDP growth (pct.) /2            -8.3     -32.9     -22.0
GDP (at current prices) /2          143.3   1,004.6     970.4
By Sector:
  Agriculture, Forestry              27.02    163.36    159.89
  Manufacturing                      58.33    302.65    257.92
  Construction                        8.02     50.10     39.00
  Mining and Quarrying                0.27      1.47      1.19
  Fishing                             1.60      3.68      4.40
  Energy and Water                    2.92     16.20     15.19
  Services                           45.10    467.08    492.94
Net Exports of Goods
 and Services                         n/a     572.7     527.5
Real Per Capita GDP (lats at
 1990 prices) /2                     21.51     14.41      8.8
Labor Force (000's)               1,527     1,502     1,483
Unemployment Rate (pct.)            n/a       2.3 /3    5.5 /4


Money and Prices
(annual percentage growth)

Money Supply (M2)                   n/a     151.0       n/a
Base Interest Rate (pct.)           n/a     120.0       27.0
Retail Inflation (pct. chg.)        124     951        13.6
Wholesale Inflation                 124       n/a      32.1
Exchange Rate ($ per lat) /5
  Official                          n/a       n/a       n/a
  Market                            n/a     1.12       1.64


Balance of Payments and Trade /6
 (millions of U.S. dollars unless noted)

Total Merchandise Exports (FOB)   6,357       831       527.5
  Exports to U.S.                   n/a        11         1.8
Total Merchandise Imports (FOB)   5,186     1,017       413.5
  Imports from U.S.                 n/a        55         6.1
Aid from U.S.                         4.7       6.0       9.0
External Public Debt /3              10.0      58.3     184.8 /4
Debt Service (paid; mill. lats)     n/a        17.55      7.57
Gold and FOREX Res. (mill. lats)      0        77.5     336.2 /7
Trade Balance                       n/a     1,171       114.0
  Balance with U.S.                 n/a       -44        -4.3


Notes:

1/  January-September, 1993.
2/  GDP estimates are for the state sector only; the private
    sector is believed to account for about 25 percent of
    Latvian economic activity in 1993.  Due to high inflation
    in 1991-2, real GDP data for 1992-93 based on 1990 prices
    are essentially meaningless indicators.
3/  End-of-year total for 1992.
4/  As of November 1, 1993.
5/  Since Latvia's currency, the lat, did not begin circulating
    until March 1993, the figures given express the exchange
    rate for Latvian rubles (in 1992) at the official 200/1
    ruble-to-lat 1993 conversion rate.
6/  Merchandise trade includes ruble zone.  Source:  For 1991
    and 1992, IMF and U.S. Department of Commerce figures in
    U.S. dollars.  For 1993, U.S. Embassy estimates in million
    lats.
7/  As of October 1, 1993.



1.  General Policy Framework

    Since independence was restored in August 1991, Latvia has
made steady progress toward replacing the centrally-planned,
socialist system imposed during the Soviet period with a
structure based on free-market principles.  The country is one
of the first post-Soviet economies to achieve macroeconomic
stability, having lowered inflation to an annual rate of 7.6
percent in the second and third quarters of 1993 and recorded a
balance of trade surplus for the first half of 1993.

    As amended on October 28, 1993, the Latvian state budget
for 1993 foresees a deficit of 30.2 million lats, or 1.8
percent of GDP, which is anticipated to be financed by
borrowing from the Bank of Latvia and by the sale of short-term
bills.  Latvia is the only post-Soviet economy to have
introduced a freely-convertible national currency, the lat,
while relying on market forces to determine the exchange rate. 
Its laissez faire policies with respect to foreign exchange
have contributed to Riga's emerging as a financial center for
the former USSR.

    Structural reform has proceeded most rapidly in agriculture
and in the privatization of small enterprises.  Over 53,800
private farms have been established and most remaining
collective farms transformed into private joint stock
companies.  However, many of Latvia's new farmers are operating
at subsistence levels due to lack of financial resources and
credit.  Control over urban and rural property is being
returned to former owners; the legal right to urban property
has not been established and mechanisms for title registration,
sale and mortgaging of real property are not yet fully
developed.  The pace of privatization of large enterprises has
been slow, as only about a dozen of Latvia's largest industrial
enterprises have been privatized.  Privatization of industry
has lagged, in part because large enterprises are perceived by
potential investors as outdated, inefficient dinosaurs with
doubtful or limited futures.

    Latvia's economic transition has been hurt by the collapse
of industrial and agricultural exports to Russia and the NIS
due to rapid inflation of the ruble and NIS currencies and by
the failure of state-to-state mechanisms for settling
payments.  Foreign investment in Latvia remains modest and is
expected to amount to only $50 million in 1993.  Latvia's
growing private sector is estimated to account for as much as
25 percent of the country's GDP.  That growth and Riga's
emerging role as a regional financial and commercial center is
beginning to offset the ongoing shrinkage of the state sector. 
Latvia probably experienced a 10-12 percent decline in real GDP
in the first half of 1993 and is expecting flat growth in the
second half of the year.  Latvia is forecast to experience real
growth in the one to five percent range in 1994.  The rapid
deceleration of inflationary pressures in 1993 has helped to
stabilize living conditions.  However, rapid inflation at the
end of the Soviet period wiped out most personal savings,
adding to the hardship of pensioners on fixed,
subsistence-level incomes.


2.  Exchange Rate Policy

    The exchange rate of the lat is determined by market forces
with limited intervention by the Bank of Latvia.  In 1993, Bank
of Latvia intervention was aimed at preventing the lat from
appreciating too rapidly.  Latvia does not restrict the import,
export, exchange or use of foreign currencies inside the
country.  The Bank of Latvia has foreign reserves roughly
double the value of all lats in circulation; based on these
reserves, the Bank of Latvia guarantees the full convertibility
of the lat.  The Bank of Latvia is exercising a policy of
monetary restraint consistent with International Monetary Fund
guidelines.

    Between January and September 1993, the lat appreciated 44
percent against the U.S. dollar and 41 percent against the
German mark.  The lat, which was worth $1.65 on November 1,
1993, is believed to still be undervalued against the main
convertible currencies by perhaps as much as 50 percent on
purchasing power parity basis.  Convertibility of Latvia's
currency has created a small, but dynamic market for western
consumer goods.  Export opportunities for capital goods are
largely dependent on the availability of multilateral bank or
other foreign financing.


3.  Structural Policies

    The Latvian government's overriding economic goal is to
manage a smooth transition to a market economy.  It has
accepted the challenge of adopting measures to control
inflation, limit the growth of the state budget deficit,
promote foreign investment, move forward with privatization,
and build a legal and regulatory infrastructure comparable to
those in advanced industrialized countries.  While Latvia
passed bankruptcy legislation in 1991, administrative
mechanisms and procedures are not yet functioning well in that
the law does not establish criteria for initiating bankruptcy
procedures or provide a mechanism for rehabilitating
enterprises on the brink of bankruptcy.

    Price policies:  The Latvian government almost completely
decontrolled farm procurement and retail food prices in
December 1991 and removed restrictions on the pricing of
industrial goods in January 1992.  To safeguard producers,
support prices were maintained for the procurement of cereals,
sugar beets, flax, meat, milk, and poultry.  Less than eight
percent of goods and services remained subject to control,
including energy, telecommunications, rents and other public
services.

    Tax policies:  Latvia is in the process of implementing a
modern tax structure, which will include a value-added tax
(vat), a profit tax, a graduated personal income tax, excise
and property taxes, customs duties, land and natural resource
taxes, and a social security tax.  Until a true vat is
implemented, the government is collecting an 18 percent
turnover tax on most goods and services; the turnover tax rate
for agricultural products is 10 percent.  The profit tax is
applied to annual net profits at rates of 25-45 percent.  The
law on foreign investment provides for tax reductions for up to
five years for qualifying foreign investments.  The social
security tax is collected on all wages, fees, royalties and
rewards for work; the general social security tax rate is 37
percent for employers and one percent for employees.  A general
import duty of 15 percent applies to imports from countries
with most-favored-nation (MFN) agreements with Latvia.  Imports
of raw materials, spare parts, fuel, grain, cooking oil and a
few other basic consumption goods are exempt from import
duties.  Latvia collects an export duty on timber, metals,
leather, paper and a few other products.

    Privatization:  In March 1992, Parliament adopted framework
privatization legislation and, in October 1992, approved, in
principle, privatization by voucher.  Although their role is
still unclear, the vouchers apparently will be used to buy
land, apartments and shares of stock in joint stock or limited
liability companies.  The government elected in June 1993
intends to streamline industrial privatization by centralizing
responsibility in a single privatization agency.  In a related
action, the new government has abolished or trimmed back branch
industrial ministries and plans to consolidate state-owned
industries in a state property fund pending privatization.

    Regulatory policies:  Latvia is only beginning to create a
modern system to regulate economic activity.  The Bank of
Latvia is responsible for regulating the banking industry and
has started to create a supervisory structure.  An
anti-monopoly law was adopted in December 1991 and the monopoly
and competition department was established to monitor
anti-competitive practices.  In February 1993, Latvia
established a price and tariff council to oversee price
determination for goods and services provided by monopolies or
subject to direct state control.


4.  Debt Management Policies

    Latvia declared in 1992 that it is not a legal successor to
the Soviet Union and therefore is not responsible for any part
of the Soviet Union's foreign debt.  Latvia and Russia have not
agreed on the settlement of obligations arising during Latvia's
illegal annexation by the Soviet Union.

    Through November 1, 1993, the Government of Latvia has
borrowed $184.8 million from foreign creditors.  Foreign
credits and official credit guarantees amounting to $316.8
million for Latvia have been approved, including an SDR 54.9
million Standby Arrangement with the International Monetary
Fund.  On October 1, 1993, Latvia's official foreign exchange
and gold reserves were valued at $336.2 million.


5.  Significant Barriers to U.S. Exports

    The main barriers to U.S. exports to Latvia are
structural.  While remarkable improvement has taken place over
the last year, Latvia's business, banking and legal
infrastructures are not developed to western standards. 
Notwithstanding the rapid appreciation of the lat in 1993,
Latvia's currency remains undervalued, constraining the limited
purchasing power of the Latvian consumer.

    Under the 1991 Investment Law, the laws of the Republic of
Latvia apply equally to domestic and foreign investors.  The
investment law applies some limits to foreign investment. 
Acquisition of controlling shares in a Latvian enterprise with
assets exceeding $1 million must be approved by the cabinet of
ministers.  Foreign investors may engage in, but not obtain
control over, enterprises involved in activities related to
national defense; the manufacture and sale of narcotics,
weapons and explosives, securities, banknotes, coins and
stamps; the mass media; national education; acquisition of
renewable and non-renewable national resources; internal
fisheries; hunting; and port management.  Latvia does not
restrict the repatriation of profits.  On July 1, 1993, the
government of Latvia began to apply the turnover tax to
articles being imported by foreign investors.


6.  Export Subsidies Policies

    The Latvian government does not currently provide export
subsidies.  However, the government is reportedly planning to
establish a sugar production promotion fund that may be used,
inter alia, to provide an export subsidy to Latvian confection
producers.  The fund would supported by transfers of the
turnover tax collected on the sale of refined sugar; the
administration of the fund and the proposed subsidy have not
been defined.


7.  Protection of U.S. Intellectual Property

    The government of Latvia is committed to attaining a level
of protection for intellectual property rights comparable to
that provided under international conventions.  Pursuant to
that commitment, the Latvian Parliament in 1993 passed
legislation to protect copyrights, trademarks and patents. 
While the legal basis for intellectual property rights has been
established, Latvian law has not defined penalties for
violation of these rights nor established a judicial or 
administrative mechanism through which foreign owners may seek
effective redress for violation of their intellectual property
rights.  Latvia has been a member of the World Intellectual
Property Organization since 1992 and intends to join the Bern
Convention and possibly the Geneva Convention.  Unauthorized
reproductions of copyrighted video recordings imported from
Russia are widely distributed in Latvia.  To halt the use of
pirated films imported from Russia by private Latvian
television stations, the Latvian radio and television board on
October 27, 1992, adopted a ruling under which the license of
any domestic television company would be revoked if it is
unable to show that it has legally acquired the rights to the
films it broadcasts.  The board does not apply this ruling to
signals from the Russian television stations Ostankino and RTR
that are re-broadcast directly by Latvian television.

    Latvia's intellectual property practices have not had a
serious impact on U.S. trade outside the film and video
industry.


8.  Worker Rights

    a.   Right of Association

    Latvia's Law on Trade Unions mandates that workers, except
for uniformed military, have the right to form and join labor
unions of their own choosing.  As of fall 1993, about 50
percent of the work force belonged to unions; union membership
is falling as workers leave Soviet-era unions that include
management or are laid off as Soviet-style factories fail.  The
Free Trade Unions Federation of Latvia, the only significant
labor union confederation in Latvia, is non-partisan, though
some leaders ran as candidates for various smaller parties that
failed to enter Parliament.  Unions are free to affiliate
internationally and are developing contacts with European labor
unions and international labor union organizations.

    The law does not limit the right to strike.  Latvia saw
almost no strikes in 1992.  Although many state-owned factories
are on the verge of bankruptcy and seriously behind in wage
payments, workers fear dismissal if they strike and
non-citizens fear striking may affect their residency status. 
While the law bans such dismissals, the government's ability to
enforce these laws is weak.

    b.   Right to Organize and Bargain Collectively

    Large unions have the right to bargain collectively and are
largely free of government interference in their negotiations
with employers.  The law prohibits discrimination against union
members and organizers.  Some emerging private sector
businesses, however, threatened to fire union members; these
businesses usually paid better salaries and benefits than were
available elsewhere.  No export processing zones exist in
Latvia.

    c.   Prohibition of Forced or Compulsory Labor

    Forced or compulsory labor is banned and is not practiced.

    d.   Minimum Age for Employment of Children

    The statutory minimum age for employment of children is 15,
though 13-year-olds can work in certain jobs outside school
hours.  Children are required to attend school for nine years. 
Child labor and school attendance laws are enforced by state
authorities through inspections.  The law restricts employment
of those under 18, such as by banning night shift or overtime
work.

    e.   Acceptable Conditions of Work

    The labor code provides for a mandatory 40-hour maximum
work week with at least one 24-hour period of rest, four weeks
of annual vacation, and a program of assistance to working
mothers with small children.  As of September 1993, the minimum
monthly wage was set at 15 lats (about $24); the poverty line
is estimated by Latvian authorities to be 45 lats ($72) per
month.  Many Soviet-style factories are on the verge of
bankruptcy and are seriously behind in wage payments or have
put workers on reduced hours.  Latvian laws establish minimum
occupational health and safety standards for the work place,
but these standards seem to be frequently ignored.

    f.   Rights in Sectors with U.S. Investment

    Latvian employees working for U.S. investors enjoy rights
equitably under Latvian law and these rights are in line with
western standards.

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