Travel TipsLatvia

ECONOMY

With few raw materials, the Latvian economy is principally dependent on producing manufactured goods from imported materials. Key industries include vehicle and railway rolling stock manufacture, electronics, and the production of fertilizers, chemicals, timber and wood products, light machinery and food processing, which draws on Latvia’s own dairy and fisheries products as well as imported raw materials from the Russian Federation. The infrastructure is, in common with the other Baltic States, comparatively well developed. Latvia relies on power supplies from its Baltic neighbors and on imported fuel from the Russian Federation to meet its energy needs; energy imports account for one-third of Latvia’s total import bill. Through the Ventsplils Nafta terminal on the Baltic coast, Latvia is one of the major outlets for Russian oil exports. In the service sector, Riga is now an important regional financial center. Latvia has pursued economic reform in a gradual manner. The government’s reform program during the 1990s was limited by political opposition which prevented, for example, the sale of major state enterprises. The economy performed steadily during most of the 1990s, although the effects of the immediate post-Soviet period and the 1998 Russian economic crisis meant there was an overall contraction between 1990 and 2000 of about 20 per cent. Since 2000 annual growth has accelerated to its current level of about 8 per cent, possibly conferring on Latvia the status of a ‘Baltic tiger’. The country introduced its own currency, the Lat, in 1993: this is now the sole legal tender. The following year, a free trade zone was established with Estonia and Lithuania. In June 1995, Latvia signed an Association Agreement with the European Union, as the first stage on the path towards joining the EU – a major objective of successive governments since independence. Negotiations proceeded more rapidly and successfully than had been expected, and Latvia was able to join the EU, along with nine other countries (including both of Latvia’s Baltic neighbors) on 1 May 2004. Latvia had previously been admitted to the European Bank for Reconstruction and Development in 1991, then in 1996 to the World Bank and IMF (which in 2001 provided a loan of US$40 million to finance structural reforms). The EU – especially Germany, Sweden and Finland – now accounts for half of total Latvian trade; the Russian Federation and the other Baltic states are the other main trade partners.