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Capital Markets

Latvia: Election victory sets path to economic recovery

Return to positive growth in 2011; Credit risk spreads down, equity investor interest up

Riga mayor Nils Usakovs (left) and Latvia’s prime minister, Valdis Dombrovskis of the Unity bloc: election reduces political risk

Riga mayor Nils Usakovs (left) and Latvia’s prime minister, Valdis Dombrovskis of the Unity bloc: election reduces political risk

Latvia’s prime minister, Valdis Dombrovskis, and his coalition partners scored a stunning victory in October’s general election, securing 63 out of the 100 seats in parliament and transforming the incumbent minority administration into one with a good working majority. The election result paves the way for the Latvian economy to continue its recovery from a biting recession, during which GDP has plunged by almost a third in the past three years.

But one of the sharpest downturns in modern economic history looks set to be over by the end of the year. The so-called internal devaluation policy pushed through by Dombrovskis after he took the helm of a fragile coalition of parties in March 2009 is beginning to deliver results in economic competitiveness – exports are up 40% this year, for example – and in persuading international investors that the country is not an economic basket case.

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