Latvia has the advantage of being a small country that can be easily disected so that targetted segments of the economy can be stimulated. Larger economies generally impliment broad sweeping policies.
1. Latvia can pass legislation to restrict banks from applying too high interest rates and fees on financially stressed families seeking to restructure their loan.
Loans can then be refinanced in to Latvian Lats if people believe the Lat will depreciate.
2. The Lat should be depreciated only after management issues like in 1 are taken care of. The recent sales tax increase for Hostels and Hotels from 5 to 21% suggests this is the intention of goverment.
3. Salary tax and Social tax should be decreased by at least 5% during this downturn and then when the economy has recovered these taxes can be revesed 1% a year so that an additional 5% is placed on top of today's rate and then slowly brought back to todays rate.
4. Provide incentives to Councils to modernise city heating from Gas or oil to wood Pellets or wood chips so as to decrease the amount of capital departing Latvia.
5. Provide incentives to households to improve energy efficiency so that they spend to decrease the drain on their cashflow and concurrently stimulate retail demand in the economy.
6. Seek the donation to Latvia of equipment made redundant by city councils and hospitals in Scandinavia and Old Europe.
15 December, 2008
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