LATVIA

Republic of Latvia

Latvijas Republika

COUNTRY OVERVIEW

LOCATION AND SIZE.

Located in the Baltic region of Eastern Europe, Latvia is bordered by Estonia (339 kilometers; 211 miles), Russia (217 kilometers; 135 miles), Belarus (141 kilometers; 88 miles), Lithuania (453 kilometers; 281 miles), and the Baltic Sea (531 kilometers; 330 miles). Slightly larger than the state of West Virginia, Latvia has a total area of 64,589 square kilometers (40,136 square miles). Its capital, Riga, is centrally located and lies next to its namesake, the Gulf of Riga.

POPULATION.

In July of 2000 the population of Latvia was estimated at 2,404,926, a decrease of 10 percent from the 1989 population of 2,666,567. This decrease is the result of 2 factors. The first is the economic hardships that set in following the break-up of the Soviet Union in 1991—of which Latvia had been a reluctant member— and the decision of families to postpone procreation. For the first time since the 1945 flight from the advancing Red Army and the 1949 Soviet deportation of dissident Latvians to Siberia, the total number of deaths outnumbered the total number of births. The second, and more important, factor has to do with the out-migration of Slavs, primarily Russians and Ukrainians. The regained independence of Latvia in 1991 brought a shift in political power from Russian control into Latvian control. New Latvian language requirements for certain employment sectors and the sudden reality of monolingual Russian speakers living in a new "foreign" country spurred a large emigration movement.

In 2000 the birth rate stood at 7.8 births per 1,000 while the death rate stood at 14.88 per 1,000. With a current out migration of 1.32 per 1,000, Latvia's annual population growth rate is-0.84 percent, and the projected population for 2015 is 2.1 million and for 2030 is 2.0 million. With an official unemployment rate of 8.6 percent (unofficial estimates are close to 14 percent), there is no great demand for an immediate increase in the labor force . The below replacement level birth rate may factor into labor shortages should Latvia's productive economy increase significantly. Female life expectancy (74.6 years) is much greater than male life expectancy (62.4 years) and thus among older people women greatly outnumber men. The largest percentage of the population are within their working years, 20 to 64, and a great amount of economic responsibility falls upon them. The dependency ratio (the percentage of the population that are either above or below their productive working years) in 1997 was 49.9 percent. In this same year, the percentage of the population aged 65 and above was at 13.6 percent and is estimated to reach 16.8 percent by 2015. Despite this increase in the percentage of the aged, the dependency ratio is predicted to drop to 45.8 percent by 2015. This is due to the drop in fertility rate, from 2.0 children per mother in 1975 to 1.3 in 1997.

Language and citizenship policies that served as a reprisal against former Russian dominance fostered the out migration of that group, but criticisms from theUnited Nations and the European Union for such discriminatory practices have caused the Latvian government to soften its citizenship and naturalization policies. In 1989 Latvians comprised only 52 percent of the country's population while Russians constituted 34 percent, with Belorussians, Ukrainians, Poles, and Lithuanians, in respective ranking, making up most of the remainder. Within 6 major municipalities, the Russian population grossly outnumbers the indigenous population, and the former dominance of the Russian language meant that it was impossible for a Latvian to engage in any type of economic activity without the use of Russian. Current conditions have changed and monolingual Russian speakers are faced with very difficult circumstances. In 1996 ethnic Latvians comprised 56.6 percent of the country's population, while the remaining ethnic Russians constituted 30.3 percent. However, 71 percent of the Latvian population are considered citizens while the remaining 29 percent are not, indicating that a significant portion of the ethnic Russian population has been given citizenship. This issue has been a continuing source of contention in the country's politics.

OVERVIEW OF ECONOMY

The economy of Latvia today, which is based on light industry and services, looks optimistically toward the future. But, like the other 2 Baltic States—Estonia and Lithuania—which emerged from the break-up of the Soviet Union in 1991, Latvia suffered severe economic shocks in the first decade of its transition from communist rule and has faced a difficult road during its transition to a market economy.

During the 1920s and 1930s, Latvia experienced a miraculous economic recovery after the ravaging of World War I (1914-18). Agrarian reform provided land for the dispossessed. Many farmsteads formed cooperatives that provided loans and export credits, the currency was stable, there was low inflation , unemployment was not as severe as it was in Western Europe during the Great Depression, and Latvia was able to tuck away 10.6 tons of gold in foreign banks. But this recovery was severely interrupted by World War II, and Latvia's economic processes were quickly altered by the invasion of the Red Army of the Soviet Union. As the Soviet Union took command of the economy, almost all property, including farms, was placed under state control, leading to the 1949 deportation of 40,000 mostly rural occupants. The following decades saw a continual struggle between rational communist reformers and political ideologues attached to Moscow, with the latter habitually prevailing. Though there was an attempt to reorient Latvian industry from its growing reliance on imported raw materials, by 1959 Moscow, the capital of the Soviet Union, over-saw all of Latvian industrialization and economic development. Despite such control, Latvians always remembered their previous economic successes and recognized that they would have been better off if they had remained separate from the Soviet Union.

The Soviet economic system entailed the importation of raw materials, fuel, and workers into Latvia, and the exportation of finished products. But the environment and the social welfare of Latvians suffered under this plan, as they did in all the Soviet republics. Finally, by the late 1980s, Latvia managed to gain greater control of its economy, increasing its share of control of financial activities from 17 to 42 percent by 1990. After the break-up of the Soviet Union, all the republics encountered a severe economic trauma. Rising energy prices and lack of price controls made Western goods too expensive for the markets of the former Soviet Union, and the quality of goods produced in Latvia was too poor to be competitive in Western markets. International trade plummeted, manufacturing slowed, and unemployment and inflation soared.

Economic reforms introduced after the declaration of independence from Russia in 1991 called for a shift in the direction of exports away from Russia and toward the West, a change and stabilization of the currency, and a shift away from heavy industry toward a more service based economy. Privatization —the sale or transfer of state-owned businesses to the private sector —has proved to be one of the most difficult aspects of transition. It was some while before a privatization agency was established. There was not enough domestic capital to successfully purchase large enterprises, and perceived political instability and the prospect of costly retrofitting obsolete production companies hindered the attraction of foreign investment, which in itself was met with resistance as Latvians feared the selling off of its assets. Honoring the claims of previous ownership proved to be a difficult task as well. Claimants feared the high cost of repairs that would be necessary for properties, and the division of collectivized farms was troubled by the unequal value of the land.

The 1998 Russian financial crises affected Latvia, which experienced no growth in gross domestic product (GDP) in 1999. But currently Latvia shows every sign of becoming more involved with trade with the West and the world. It has joined the World Trade Organization (WTO) and has joined talks for accession into the European Union (EU). Major foreign investment in 1999 was directed toward real estate and in the financial sector, while investment in 2000 was directed toward energy and transportation. A 5.4 percent increase in the GDP in 2000, a decline in unemployment, and the stabilization of inflation spell good news for Latvia's bid to enter the EU in 2003.

POLITICS, GOVERNMENT, AND TAXATION

In 1989 the Latvian Supreme Soviet ended the Communist Party's political monopoly , and there was a rise in independent political parties and the opportunities for free elections, something that had not been possible in Latvia since 1940. Results of the first free election saw only 15 of the 201 pro-Soviet deputies reelected. Approximately two-thirds of the new members belonged to the Popular Front of Latvia (LTF), a pro-independence party that formed in 1987. On 4 May 1990, the Supreme Council, or Parliament, adopted a declaration of independence, declared Soviet annexation illegal, and restored articles of the 1922 constitution. On 21 August 1991, after the Soviet coup in Moscow, Latvia declared full independence but failed to enact components of the 4 May 1990 declaration because of questions about the legitimacy of the new government and whether amendments to the 1922 constitution should be permitted. Much of the opposition was due, the critics asserted, to the fact that election had taken place while Latvia was still occupied and that members of the Soviet army had participated and had been allowed to use rules different from the rest of the voting population. It was contended that only those with Latvian citizenship prior to Soviet occupation should be allowed to decide Latvia's future. In the following election in 1993 approximately 25 percent of the permanent residents in Latvia, mostly ethnic Russians, were not allowed to vote.

In Latvia's electoral system 100 representatives are elected for a 3-year period to serve in the Saeima, which then elects a board whose chairman or deputy serves as speaker for the legislature. The Saeima elects a president who also serves for 3 years and is excluded from serving more than 2 terms. The president appoints a prime minister, who then nominates the other cabinet ministers. In their May 1994 elections—the first since independence—a majority of the representatives elected were members of the Latvian National Independence Movement or other nationalist parties. Segments of the Communist Party of Latvia, which had previously dominated, fared very poorly. A host of contending political parties emerged and their particular prominence waxed and waned as various issues became more urgent for Latvia's citizens. For example, a 1994 dispute about tariffs on agricultural imports prompted the Latvian Farmer's Union to withdraw from the ruling coalition and resulting in a collapse of the government. Lativia faced the critical issue of citizenship. The first bill was very restrictive for Russians and other non-Latvians, allowing only 2,000 people to naturalize per year. International as well as domestic pressure caused the Saeima to reconsider and initiate another, less restrictive policy. The revised policy was that the applicant should have lived in Latvia at least 5 years, have adequate knowledge of the country's language, history, and constitution, and have a legal source of income.

Latvia, as with the other Baltic States, has played an interesting role in the continuing geopolitical, suspicion-laden struggle between Russia and the West. Latvia's initial attempts to join with North Atlantic Treaty Organization (NATO) were unsuccessful, but efforts toward this end, as well as integration into the EU, continue. Continued strengthening of democratic policies and adherence to economic liberalizing policies has made Latvia's access to these groups favorable, even though Russia continues to express disfavor.

A sizable portion of the state income is derived from value-added tax (VAT), and this tax has been increased up to 18 percent in order to meet state expenditures. To attract foreign investment of capital and to stimulate the economy, certain conditions applied for the exemption of VAT toward foreign investment. The government also sells treasury bills and earns interest on loans to domestic, private, and national enterprises.

INFRASTRUCTURE, POWER, AND COMMUNICATIONS

Latvia possesses 2,406 kilometers (1,495 miles) of railroads that extend toward Russia, Belarussia, and the other Baltic States. Both they and the cars that roll across them are aging and in need of repair. A network of 59,178 kilometers (36,773 miles) of roads, roughly a third of which are paved, allows access to all regions of the country. While private car ownership has risen in that last years, railways and buses transport the majority of commuters.

Major seaports located at Riga, Ventspils, and Liepaja, which remain ice free throughout the year, are superbly linked to both rails and an extensive network of roads, allowing the domestic and international transportation of goods. Latvia, which is dependent on the importation of fuels, also serves as a transit area for outgoing supplies. The port of Ventspils is the terminus for the Volga Urals oil pipeline (which extends into Russia) and can simultaneously accommodate 3 large tankers. The port at Liepaja, the deepest port in the Baltic Sea, was formerly operated for Soviet military purposes and is in need of major modification for commercial purposes. The port at Riga, the busiest in Latvia, is responsible for the greatest movement of trade goods.

Oil and gas are imported into Latvia from Russia and help to fuel industries and the 2 thermal power plants near Riga. In addition, 3 hydroelectric dams along Latvia's largest river, the Daugava, add to the power supply, but still electricity is imported to feed this most industrialized Baltic State.

Privatization has caused a reconstruction in Latvia's telecommunications network. In 1994, 49 percent of the system was sold to a British-Finnish telecommunications consortium and international communications became available at standard international rates. The privatized telecommunications company, Lattelcom, is working toward a fully digitized network by 2012, thus alleviating the problem of unmet demand due to a shortage of lines. In 1997 there were 748,000 main telephone lines in use, and in 1999, 175,348 cellular phones in use.

ECONOMIC SECTORS

The years following World War II saw a shift in Latvia's major economic activity from agriculture and toward Soviet-style heavy industry. In 1990, agriculture

accounted for 20 percent of the GDP while industry comprised almost 43 percent and services—including transportation, communication, and construction—were around 34 percent. The transition toward a market economy, however, has created a definite shift in economic orientation toward the west. By 1998 agriculture contributed only 8 percent of the GDP, while industry contributed 29 percent and services contributed 63 percent. (Employment per sector was last recorded in 1990 at 16 percent in agriculture, 41 percent in industry, and 43 percent in services, but these numbers have likely shifted significantly over the course of the decade.)

In 1993, 33 percent of Latvia's exports were directed toward Western Europe while 48 percent were directed toward the republics of the former Soviet Union. By 1999, exports toward the European Union were at 63 percent while export with the former Soviet Union states was reduced to 12 percent. The export of services has experienced rapid growth—22 percent in the first three-quarters of 2000 alone. These services include information technologies and computer software, international trade banks, and cargo services. As the Latvian economy models itself on the economies of the West, such services will play an even more important role in Latvia's integration into the European Union. These exports have been of great value, providing stability at a moment when external shocks, such as a strengthened dollar and rising oil prices, have hurt the trade balance.

AGRICULTURE

Under Soviet control, once-dominant Latvian agriculture took a back seat to industry. By 1990, the amount of agricultural land in Latvia decreased 32 percent from its 1932 levels. As agriculture was brought under state control, many of the former farms were abandoned and converted to forest. Half of the arable land was used for fodder crops for the cattle and dairy industries that supplied the Soviet Union. About 40 percent of the land was used to grow grain, and the rest was for potatoes, flax, and sugar beets. Meat, dairy products, and crops were shipped to other Soviet republics in exchange for equipment, fuel, and fertilizer. Small private plots and some animal holdings were permitted by the Soviet authorities. These plots served a vital role in supplementing the poor output of the inefficient collective farms. At the end of communist rule much of the country's livestock was held on such plots. When the Soviet system fell apart, however, feed shortages and rising cost of farm equipment created a decline in agricultural production in Latvia.

From 1994 to 1998 there was a general decrease in the production of meat products. Associated with this was a drop in fodder production. The most dramatic decline in livestock was in beef production and the least dramatic was in poultry. Milk production was down slightly while egg production increased. This is likely due to the economic austerity endured and the generally higher costs associated with meat product. Eggs, being a replenishable product, are a more economic form of protein. Production of cereals and potatoes decreased, but sugar beets doubled. This shift makes sense as the resultant sugar could be easily exported and bring in much needed hard currency . Forest products, such as paper and timber, also added to the economy through export. Even though agriculture declined in percentage of GDP in Latvia, it still accounted for 16 percent of the labor force in 2000.

Forests cover 40 percent of Latvian territory, with the majority of them being in the northern areas, which are 50 percent wooded. Over 11 percent of forests are protected, while the remaining forests are mixed between commercial and restricted management. Forest resources are not fully exploited, and if financial resources can be found to develop the industry, the number of annual cuts could be doubled. Local and international environmental organizations, of course, oppose such increased development

INDUSTRY

MANUFACTURING.

Proximity to European markets and the ease and cheapness of transport across the Baltic Sea makes Latvia well situated for delivering goods to market according to EU standards. Cheap labor, a stable currency, membership in the World Trade Organization, and future membership in the EU has made industry an important part of Latvia's development plans.

Manufacturing in Latvia is currently organized around machinery, textiles (especially woolens), food processing, and wood processing. Due to cheap labor and abundant resources, wood processing is the most dynamic sector and possesses the potential for dramatic increase. Latvia produces automobiles, electric rail cars, and consumer goods such as radios and appliances. Steel, cement, wood products, chemicals, and electronics are also manufactured in Latvia's major urban centers. Dependence on imported energy delivered at increased prices injured the industrial sector of Latvia, once the most industrialized of the Soviet Republics, and the service sector has increased in importance. Information technologies (IT) have recently become a rapidly developing area due to changes in the political, business, and technical infrastructure of the country. About 20 percent of total foreign investments is directed at manufacturing.

As of 1999, food products and beverages comprised the largest share of Latvia's manufacturing at 36.4 percent. Wood and wood products, at 17.8 percent in 1999, comprised the second largest share of Latvian manufacturing and increased 14.5 percent from the previous year. Textiles remained important at nearly 6 percent in 1999, and other significant industries in 1999 included the following: publishing and printing (4.7 percent), wear apparel (3.7 percent), chemicals (3.5 percent), metal wares (2.9 percent), and transport vehicles (2.9 percent).

SERVICES

TOURISM.

Latvia is the least known of the Baltic states and does not receive much tourism. However, Riga, the largest and most vibrant city in the Baltic States, is the primary tourist destination, offering opportunities for day trips. Tourism by Russians is still present in Latvia, but Western visitors have become more numerous. Latvia's coast supports several beach resorts, but poor water quality in the Baltic Sea has discouraged bathers. In fact, the number of visitors to Latvia has decreased from 2.4 million in 1993 to just 1.7 million in 1999.

FINANCIAL SERVICES.

Latvia's 2-tiered banking system began in 1988 when its first commercial banks were established. Prior to the break up of the Soviet Union, there were no private banks in any of the Baltic States. Since that time, the banking system, although suffering 2 crises, has developed well and offers a variety of services to its customers. The Central Bank of Latvia was founded in August of 1990. It is an independent bank that has the right to issue the national currency, supervise other banks and credit unions, and control the economy via monetary policy instruments, such as national interest rates. It is independent of the Latvian government and handles foreign currency.

The commercial banking sector is controlled by the Central Bank. The bank crises have struck Latvia since independence. Connected to a large reduction in the number of banks, the first crisis occurred in 1995. The second crisis accompanied the Russian economic collapse of 1998. Since that time, the Latvian banking system has been recovering, and a majority of the banks have ended the year with a profit.

The banking system in Latvia has been almost entirely transferred into private hands, although 70 percent of the ownership and control is with foreign institutions. There are currently 21 banks and 1 foreign bank branch in Latvia. In 12 of these banks, more than 50 percent of assets are owned by foreign shareholders. In 2000 there was a 38 percent increase in the total assets of banks as investment has increased and proved profitable. Cash and capital flow into and out of Latvia faces virtually no restrictions.

The Riga Stock Exchange (RSE), re-established in 1993, is Latvia's only licensed stock exchange. It is owned by 27 shareholders, and the Latvian Ministry of Finance regulates its activities. The shareholders include major Latvian commercial banks, brokerage companies, and the State Real Estate Fund. In June of 1997, the RSE became the first exchange in Eastern Europe to have a Dow Jones Index, meaning that the daily activities are collectively reported in a quantitative fashion to display the rise and falls in the market.

INTERNATIONAL TRADE

Latvia's geographical position has made it a strategic trading hub for generations, and this benefit continues as an increase in trade between East and West passes across its borders. There has been a significant shift in Latvia's international trade away from the states of the former Soviet Union and toward the EU and other western markets. In 2000, about 68 percent of exports were directed toward the EU. In 1998, Germany was Latvia's single largest tracking partner, with 16 percent of exports and 17 percent of imports. The United Kingdom was the second largest source of exports from Latvia, with 14 percent, followed by Russia with 12 percent, Sweden with 10 percent, and others. Russia was the second largest importer of goods to Latvia, with 12 percent, followed by Finland with 10 percent, and Sweden with 7 percent. About 65 percent of the energy imports come from Russia, but Estonia, with its nuclear reactors and available uranium, also provides electricity to Latvia. The EU is responsible for 45 percent of the imported machinery. All told, Latvia exported US$1.9 billion of goods in 1999 and imported US$2.8 billion in goods in 1998.

MONEY

The Lat replaced the Latvian ruble in March of 1993. The exchange rate of the Lat has remained relatively stable, which has been crucial to Latvia's development process, for it has meant that confidence among foreign investors has remained high. Initially, following independence from the Soviet Union, Latvia experienced considerable economic difficulty as relations with their former Russian trade partner weakened and Latvian goods were not competitive in the western markets. Inflation was high and the purchasing power of the population fell and remained low. With the exception of the setback of 1998, which was tied to the Russian financial crises, Latvia's economic condition has slowly been improving. As of 2000 the purchasing power had increased 4.2 percent from the previous year. The increase in disposable income , at 8.1 percent, has been greater in urban areas than in rural areas, according to the Central Statistical Bureau of Latvia.

POVERTY AND WEALTH

Political changes and the reintroduction of a free market system in 1991 have forced people who once depended

on the state to struggle independently for their economic survival. For the poorest in Latvia, life is difficult because social services, such as health care, worker's compensation, and pensions, have been dramatically cut. The percentage of Latvia's poorest is higher than well-developed nations, with 21.4 percent living below the poverty line (defined as one-half of the average income). Poverty is highest among rural residents (26 percent) and among families with 3 or more children (44.1 percent), according to a report by Petra Lantz de Bernardis.

A 1999 survey of living conditions in Latvia reported by the Central Statistical Bureau of Latvia revealed, not surprisingly, that those with the lowest degree of education had the least favorable prospects for jobs. However, an advanced education does not necessarily guarantee a high standard of living in contemporary Latvia, nor does a high standard of living necessarily indicate an advanced education. In 1999 the average wage for an individual with a high education was 156 lats while a person with a basic education received 75 lats. In comparison to state and public enterprises, private enterprises more often engage workers without a contract, put them in unfavorable work conditions, and provide no sense of job security for the worker. Of the survey respondents aged 18 and over, 7.2 percent have been robbed of personal belongings from a home or car, 3.6 percent have been threatened with violence, and 3.3 percent have been mugged.

Many households cannot afford simple amenities. About 11 percent of the households cannot afford education for their children, 16 percent cannot cover emergency medical expenses, 20 percent cannot afford to eat meat or fish at least 3 times a week, 21 percent cannot afford annual dental checkups, 38 percent cannot go out for an evening at the movies or a concert, 38 percent cannot afford to entertain guests, 65 percent cannot afford new clothes, 77 percent cannot afford to replace worn furniture, and 82 percent do not have enough money for a holiday weekend abroad. While nearly half of the survey respondents reported good health, it was found that increased age was accompanied by decreased health. Also, there was a direct correlation between poor economic conditions and reports of ill health.

WORKING CONDITIONS

During Soviet rule, Latvia became the most industrialized and urbanized republic of the Soviet Union. While the importance of industry has deceased since the break-up, urbanization in Latvia remains high, hovering at around 78 percent of the population living in urban centers. The high level of pollution emitted by Latvia's factories contributes to low life expectancy, especially for males. Adding to the danger of shortened lives is a Latvian diet traditionally high in fats, a national aversion to exercise, and a male propensity toward heavy smoking. Nonetheless, the economic hardship caused by the breakup has improved the general health of Latvians and life expectancies are creeping upward.

Females live longer in Latvia but still do not experience economic equality with males. In 1998 the real GDP per capita for females was US$3,330 while for men it was US$4,664, a difference of almost 29 percent. There are more young women in secondary school and more in higher education. This may be due to the need for young men to begin work at an earlier age.

The dominance of service sector and light industries explains the high level of urbanization in Latvia. The city centers, which were previously most Russian, contain all of Latvia's institutions of higher education. The large percentage of Russians remaining in the city and the prohibitive cost of housing for students makes acquisition of a degree difficult for Latvians, who in 1989 were fourth in ethnic groups in Latvia to be enrolled in university.

The total workforce in Latvia in 1997 stood at 1.4 million, with an unemployment rate of 9.6 percent in 1999. As a result of economic conditions, many people are forced to work more than 40 hours per week in order to gain extra income. But simultaneously, many enterprises are unable to pay their employees a full week's wages, forcing employees to work part-time or to take unpaid leave. The legislation of Latvia regards forced holidays and a shortened business week as concealed forms of unemployment.

COUNTRY HISTORY AND ECONOMIC DEVELOPMENT

1300. Prior to this date Latvia is composed of half a dozen distinct and independent kingdoms; after 1300, German barons dominate the region and establishe a Germanic culture.

1710. A Russian elite infiltrates the bureaucracy of Latvia under the rule of Peter the Great, challenging the dominance of the Germans.

1850. First Latvian Awakening appears as resistance to Germanic and Russian influences. A Latvian elite begin to develop and push for self-determination in local affairs.

1880. Rapid industrialization of the largely landlocked Russian Empire causes it to incorporate the Baltic States in this process. The Latvian economy develops rapidly, under the direction of Russia, and the third largest port in the Russian empire is created by 1913.

1905. Marxist ideology spreads in the workplaces of Latvia, leading to a crackdown by authorities and the creation of a mass movement against Russian authority and German nobility.

1914. World War I (1914-18) leads to the evacuation of half the Latvian population who flee the invading German army into neighboring countries to the east. The Communist movement gains strength.

1918. Latvia claims independence on 18 November and 2 years later pro-and anti-Communist forces end their hostilities.

1921. Latvia joins the League of Nations and begins a 20 year period of economic progress, later known as the Second Awakening.

1934. Centrist politician Karlis Ulmanis gains power and ends the political instability of the multiple-party parliamentary system. He is later deported from Latvia to a prison camp in Russia by the Soviet authorities and dies in captivity in 1942.

1939. The Nazi-Soviet Nonaggression Pact between Germany and Russia puts Latvia, Estonia, and Lithuania under Soviet control.

1939. On 5 October Latvia is coerced into signing the Pact of Defense and Mutual Assistance; 30,000 Soviet troops occupy the country.

1939. In November, Soviets attack Finland, resulting in the Soviet Union being expelled from the League of Nations, along with Latvia.

1940. Soviet leader Joseph Stalin demands that the Baltic State governments be replaced with Soviet officials, leading to the creation of the Latvian Soviet Socialist Republic on 21 July.

1941. Immediately after the Soviet Union either deports or executes 35,000 Latvian dissidents, a Nazi invasion and 5 year occupation translates into an almost complete annihilation of Latvia's Gypsies and Jews.

1945. The Red Army reoccupies Latvia, and approximately 200,000 refugees flee. About 150,000 survivors settle in the West and engage in a long struggle to free their homeland from occupation.

1953. Soviet leader Joseph Stalin dies, and conditions for Latvian autonomy improve.

1957. Eduards Berklavs, a key figure in the Communist Party of Latvia (CPL), initiates de-Russification policies, i.e. restricted immigration from Russia, requirements that governmental functionaries know Latvian, and diversion of funds toward smaller, local activities rather than grandiose Soviet projects.

1959. Moscow purges Latvian national communists, including Berklavs and reinstitutes economic policies favoring Russia.

1985. Mikhail Gorbachev of the Soviet Union ushers in the period of perestroika, a campaign to reform the Communist Party through eased social, economic, and political mechanisms, and glasnost, the liberalization of the media and opportunity for critical discussion for the purpose of improving the system.

1987. Demonstrations for independence begin in Latvia.

1988. The Popular Front of Latvia (LTF) forms and organizes its first congress.

1989. With ever-increasing membership, the LTF becomes a de facto second government and pushes the Latvian Supreme Soviet to accept a declaration of sovereignty and economic independence.

1990. A new parliament, known as the Supreme Council, is formed and votes in favor of a transition to democracy and independence.

1991. Following a failed coup in the Soviet Union, Latvia declares independence on 21 August; Latvia joins the United Nations.

1992. Faced with high prices, problems with privatization, and hyperinflation, Latvia's economy crashes.

1993. A new currency, the Lat, is introduced and becomes the only legal tender by October.

1994. A citizenship bill, severely restricting the naturalization of Russians, is passed but later its restrictions are eased.

FUTURE TRENDS

The outlook for Latvia in the near and far future is bright. The continued stabilization of its currency, the increase in democratic activities and transparent economic activities, the growing degree of privatization, the liberalized trade policy, and the increasing skills of its workers all mean that unemployment will decline and foreign investment is likely to continue. The current downside to this situation is that poor wages prevent the average citizen from equal participation in the emerging economic system. Also, with minimal capital available to Latvian citizens, much of the country's developing assets will be foreign owned, a condition looked upon by many Latvians as unfavorable. With Latvia's accession into the EU, the situation is likely to improve even more as capital and labor will be able to move across the borders of a united Europe.

In its efforts to enter the EU, Latvia has decreased the distance between itself and the leading Eastern European countries. But Latvian officials are disappointed that a recent progress report on EU accession of Eastern European countries puts them in a lagging category. The report states that Latvia has a "functioning market" that should be able, in the medium term, to cope with the competitive pressures of the EU market. The main tasks for Latvia will be continued privatization and fiscal discipline.

The Nordic States banking group, Nordea, predicts that Latvia will experience significant growth in the near future. The country's pulp mill industry is cited as one of the key factors for this predicted growth. Nordea predicted growth in the GDP in the coming years are as follows: 5.5 percent for 2001, 6 percent for 2002, and 5.3 percent for 2003. One negative aspect mentioned in the report was the possibility of current account deficit expansion if the privatization process should slow. This has been a perceived risk because recent political support for the left-oriented Social Democrats that are threatening the incumbent coalition.

DEPENDENCIES

Latvia has no territories or colonies.

BIBLIOGRAPHY

Central Statistical Bureau of Latvia. <http://www.csb.lv/ajaunumi.html>. Accessed July 2001.

De Bernardis, Petra Lantz. "Wealth and Poverty in Transition." UNDP: Estonia. <http://www.undp.ee/equity>. Accessed July 2001.

Embassy of Latvia. <http://www.latvia-usa.org/economy.html>. Accessed July 2001.

International Monetary Fund. Latvia: Selected Issues and Statistical Appendix. <http://www.imf.org>. Accessed July 2001.

Iwaskiw, W.R. Estonia, Latvia, and Lithuania: Country Studies. Washington, D.C.: Federal Research Division, Library of Congress, 1996.

Latvian Development Agency. Latvia: The Meeting Point of Two Worlds. <http://www.lda.gov.lv>. Accessed July 2001.

Latvijas Banka. <http://www.bank.lv/englishindex.html>. Accessed July 2001.

"News from Latvia." Central Europe Review. <http://www.cereview.org/00/41/latvianews41.html>. Accessed July 2001.

U.S. Central Intelligence Agency. World Factbook 2000. <http://www.odci.gov/cia/publications/factbook/index.html>. Accessed July 2001.

U.S. Department of State. FY 2001 Country Commercial Guide: Latvia. <http://www.state.gov/www/about_state/business/com_guides/2001/index.html>. Accessed July 2001.

—Mark Carper

CAPITAL:

Riga.

MONETARY UNIT:

Latvian Lat (Ls). One lat equals 100 santimis. There are coins of 1, 2, 5, 10, 20, and 50 santimi and 1 and 2 lats, and bank notes of 5, 10, 20, 50, 100, and 500 lats.

CHIEF EXPORTS:

Wood and wood products, machinery and equipment, metals, textiles, foodstuffs.

CHIEF IMPORTS:

Machinery and equipment, chemicals, fuels.

GROSS DOMESTIC PRODUCT:

US$9.8 billion (purchasing power parity, 1999 est.).

BALANCE OF TRADE:

Exports: US$1.9 billion (f.o.b., 1999). Imports: US$2.8 billion (f.o.b., 1998).