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Andris Lauciņš

By D. Kulagina. 15.10.2008

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  Chairman of the Executive Board of the Foreign Investors Council in Latvia

 

Q: As the government is preparing the budget for 2009, do you see some of the suggestions that FICIL has made - on macroeconomic policy, labour issues, energy policy and industrial investment environment - being implemented or taken into account?


A: The role of FICIL in Latvia has changed as the country has progressed. At the very beginning, we mostly dealt with the development and implementation of specific action plans which could facilitate business and improve the foreign investment environment. The accession to the EU and NATO slightly changed our focus, as it was a clear sign that the overall situation had improved significantly and we could move on.


Therefore, for the last couple of years, we find ourselves working increasingly as consultants on the long-term strategy and vision of Latvia. Our role means we work hand in hand with the Cabinet of Ministers and other governmental institutions. FICIL has now turned into an instrument for our members to communicate their corporate social responsibility and consequently have an impact on the current situation in Latvia.

Together with the Latvian Investment and Development Agency, each year we are working on the Action Plan to Improve the Business Environment. The plan is an inter-ministerial planning document, summarising the formulation of problems and specific tasks to be undertaken in order to solve the particular problems, listing responsible institutions, implementatiing deadlines and performance indicators. The LIAA is assigned the task of supervising the implementation of the Action Plan and institutionalising the dialogue between the investment community and thegovernment. FICIL is one of the contributors to the plan.

In terms of the 2009 budget, we see that the government has made conservative growth forecasts for budget planning. Such an approach corresponds to the suggestions in the Macroeconomic position paper FICIL presented to the government in June 2008.

The government has announced a freeze of public sector salaries and cut personnel by 10 percent. Businesses have mostly welcomed this decision. However, questions remain whether a cut across all the institutions without much of efficiency analysis is the right thing to do.

From your perspective, what are the public administration areas that have the biggest room for improvements in efficiency?

Efficiency in public administration must start with motivation. Top managers of public institutions should be motivated to deliver better service by consuming less resources. Currently, the way budget planning is performed is not encouraging them to be more efficient and, even more, current procedures and practices create barriers for that. One example would be for large public institutions to implement some elements of a shared services approach for their back office functions, but motivation and controls around public spending are not geared towards that.

In October 2007, FICIL published a quite comprehensive paper on the taxation system review in Latvia. Has it had an impact on the government's policy? Given the recession in Latvia's economy and the widening budget deficit, do you still stand by your recommendations, or should the reform be postponed?

Our tax position paper calls for a structural taxation reform that needs to be implemented gradually. We believe that changes in the tax system that promote investment and production are still the right policy decision for Latvia. The situation with the budget deficit will only get better with the overall economy – more output – and that is what we have addressed in the position paper.

What is the impact of the global financial crisis on the prospects for significant further foreign investments in Latvia?


Latvia has a relatively small and very open economy. Turbulence in the global financial system and rising energy prices are clearly one of our concerns. At the same time, the effect of such global processes in our case are rather predictable and even measurable. If things are about to get worse, we are prepared. Normally there are no later or unexpected surprises. We will most likely be affected by the same trends in capital flows which are taking place in the global arena. Previously, capital usually moved in a west to east direction, along with decreasing costs. Now, we are experiencing a reverse process created as the east has matured economically and countries such as Russia, China, India and others are having a larger impact on other countries’ FDI figures. We expect that rather soon we will see a similar trend in Latvia as well.

Often, the choice of an investment destination is based on irrational motives. It might be an excellent restaurant, a golf course, the availability of a kindergarten for the kids of a potential investor or other soft factors which play an important role in making the final decision. Therefore, my suggestion would be that in spite of the global economic problems we must all work hard and should pay more attention to the human factors such as providing each investor with the feeling that they are welcome in Latvia.




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