Bank of Latvia: low in­vest­ment level de­lays Latvia’s po­ten­tial growth

Baltic News Network - - Front Page -

The low in­vest­ment level cur­rently sti­fles Latvia’s po­ten­tial growth, said head of Mon­e­tary Pol­icy Of­fice of the Bank of Latvia Uldis Rutkaste.

«In the so-called fat years, in­vest­ment ra­tio to GDP was around 30%. That was too much, and part of it was coun­ter­pro­duc­tive be­cause it did not con­tribute pro­duc­tion de­vel­op­ment in a long per­spec­tive. Now the ra­tio of in­vest­ments to GDP is only 20%. Even in Eu­ro­zone as a whole, which is formed from very well-de­vel­oped coun­tries, in­vest­ment lev­els ex­ceed 20%. We should aim at in­vest­ment level of 25%,» said Rutkaste.

He ad­mits that some re­cov­ery is no­ticed in re­la­tion to in­vest­ments. How­ever, this re­cov­ery is mostly as­so­ci­ated with ei­ther in­fras­truc­ture fi­nanced by Euro­pean funds or con­struc­tion – new su­per­mar­kets, ware­houses, of­fice build­ings, etc.

«How­ever, if we look at in­vest­ments in ma­chiner­ies or equip­ment, we will see very poor de­vel­op­ment. The to­tal in­vest­ment vol­ume in this sec­tor has dropped sig­nif­i­cantly. While in the past, in­vest­ments in ma­chiner­ies ac­counted for a lit­tle more than 30% of all in­vest­ments, now it is only 23%. This only shows that no ma­jor eco­nomic growth is ex­pected in the fu­ture. Cur­rently pro­duc­tion out­put is close to all-time max­i­mum in all in­dus­tries. Ex­ist­ing ma­chiner­ies are over­loaded and new ma­chiner­ies are not bought. This means that with­out chang­ing any­thing, we can­not hope to se­cure large pro­duc­tion vol­umes in the fu­ture,» said the head of the cen­tral bank’s Mon­e­tary Pol­icy Of­fice.

He al­lows that such a sit­u­a­tion may be as­so­ci­ated with ex­pe­ri­ence left from cri­sis years, which means busi­ness­men re­main very cau­tious. Lend­ing ser­vices con­tinue de­vel­op­ing slowly as well. More­over, banks are afraid of the le­gal as­pects of in­sol­vency and con­cerns that it will not be pos­si­ble to re­cover pledges within rea­son­able time pe­ri­ods and with rea­son­able costs.

«More re­search is re­quired here, of course, but there is a gen­eral im­pres­sion that there are prob­lems with com­pe­ti­tion. There is no strong com­pet­i­tive breath on the do­mes­tic mar­ket that would force busi­ness­men to de­velop. And it is not like there is any con­nec­tion to leg­is­la­tion or any se­cret agree­ments among busi­ness­men, ei­ther. But there is some­thing of a post-cri­sis phe­nom­e­non present. It is sim­ply that too many had gone bank­rupt dur­ing the cri­sis, whereas the strong­est busi­nesses have be­come more sta­ble. No one re­ally threat­ens their mar­ket niches at the mo­ment. They feel com­fort­able and do not think much about growth and in­vest­ments in their fu­ture. This is be­cause they do not see any strong com­peti­tors that could po­ten­tially un­der­mine their po­si­tions. It would be best to con­sider the best ways to change the com­pe­ti­tion pol­icy in or­der to bring it to a healthy level. It could push the econ­omy to­wards fu­ture de­vel­op­ment,» said Rutkaste.

Evija Tri­fanova/LETA

Newspapers in English

Newspapers from Latvia

© PressReader. All rights reserved.