Latvia’s prime minister Valdis Dombrovskis has a job ahead of him that few people would want. The credit crunch affected Latvia as badly as anywhere in the world, and Mr Dombrovskis must find a way to get the country's economy growing again after a brutal recession, make tough cuts to balance the budget, and counter soaring unemployment.

Furthermore, the county is supposed to join the eurozone in 2014, something the prime minister said was on track despite the economic malaise. As part of the country’s efforts to get back on its feet, he has affirmed that FDI will play a vital role in the country’s economic recovery and development.


Latvia’s GDP contracted by 10.5% in 2009 and unemployment soared to 22.8%. Since 2010 the situation has somewhat stablised, but unemployment remains in double digits and growth has been sluggish. While the country’s crash did not receive the same media attention as Iceland, its collapse was arguably more severe. Several economists have used Latvia’s example to showcase flaws in the controversial Doha trade talks as the country was one of the most economically liberal and open to free trade in the world.

Free-trade commitment

Yet in an exclusive interview with fDi Magazine, Mr Dombrovskis remains committed to free-trade policies and a generally liberal economic model. He says: “We need to attract more FDI if we want to develop and recover quickly. And we are working on ways to achieve this.”

Mr Dombrovskis's plans to attract FDI include the creation of an investment council that will deal with large FDI projects, as well as the reintroduction of a lower corporate income tax of 15%. He is expecting the Latvian economy to grow by 3.3% in 2011, up from virtually zero in 2010.

On the issue of unemployment, Mr Dombrovskis accepts that it is an area of huge concern, but specifics on how he would solve the problem were not made clear. He says: “Unemployment is certainly a big concern. It is at about 14% right now. So we hope we are gradually bringing it down. We can take steps to reduce the social impact of it and create safety networks. But we need economic growth to come back and job creation.”

Fiscal consolidation

The prime minister has been responsible for a large-scale fiscal consolidation of his country’s budget following an economic collapse that effectively ushered him into office. He believes it is better for governments to make such consolidations quickly, as opposed to prolonging the pain that austerity measures can cause. However, a tighter budget could create a great deal of pain in the short term. The country’s healthcare system is regarded as one of the worst in Europe, and could suffer further with less funding.

Mr Dombrovskis, who was attending a Nordic-Baltic-UK economic summit, symbolically flew to London on discount airline Ryanair. He says that he hopes the conference will lead to more co-operation among the regions and praised UK prime minister David Cameron for organising the meeting.