Q: Since 2009, Latvia has gone from an 18% decline in GDP to being one of the fastest growing economies in the EU. What are the main factors behind the country's recovery?

A: We did exactly what we needed to. And by 'we' I mean not only government, but also the private sector. The reaction of entrepreneurs was quick, as they understood how serious the situation was. It became obvious that in order to be efficient, employers could not keep the same number of employees and also, that they would have to cut salaries. These steps were quite severe, and we all know someone who suffered, but in situations like these, you do what you have to do. The government also made sure that for those in a difficult situation caused by the crisis, there would be benefits available so people were not left without help.


Also, one of the keys to recovery was dialogue between the private and the public sector. That is what many [eurozone] countries are missing. Talking with business representatives is crucial to achieve compromise.

Q: Can the recovery also be attributed to the fact that Latvia is in the EU, but outside of the eurozone?

A: Our currency is pegged to the euro, so it is fair to say that we are in the eurozone, although indirectly. Therefore recovery should be attributed to other factors, such as an increase in productivity. It is rising faster than the labour costs and we are more efficient than we were before the crisis. Now it is crucial for our exporters to [maintain that momentum], as that is the main way to remain competitive.

Another way is to push for a more innovative economy. That is where we had been struggling for a long time. And the fact that a country’s population and size are small should not stop it from pursuing the development of advanced technological industries. Countries such as Finland, South Korea and Singapore are the examples, and despite limitations, it can be done successfully. To that end, we are preparing our national development plan for 2014 to 2020. In the plan, we are aiming to increase the share of manufacturing in our GDP and to foster the growth of our country as an important logistics hub.

Q: What other steps does the government plan to introduce to make sure that its GDP will not plummet as it did three years ago?

A: Now we talk not about the crisis recovery, but how to promote growth. We are looking at developing our country more evenly, as right now 50% of our growth annually comes from Riga [Latvia's capital]. In order to change that, we have to push for investments in other regions [using] EU funds. We also propose lowering taxes, as at the moment our taxes are higher than in neighbouring Estonia. Personal income tax and value-added tax will decrease by 1% in the next fiscal year and as far as I know, we are the only country in the EU to actually lower taxes, instead of increasing them.

We also want to be attractive for foreign investors. Although we do not compete with bigger countries from central and eastern Europe for investments, because of our location we are very well positioned as a place to start business intended to serve Scandinavian countries.