Baltic Bounce-Back Lesson Learned "Lessons

¶ … Baltic bounce-Back Lesson Learned "Lessons from Latvia: a Baltic bounce-back" details an interview with current Latvian prime minister Valdis Dombrovskis regarding the economic prospects for his country. The interview reveals the fact that these prospects are fairly auspicious for a number of reasons, such as the fact that the prime minster was reelected due to his efforts in the solving of Latvia's economic crisis that began in earnest during 2008.

Latvia was able to do so by completing an internal evaluation in which it reduced its prices and wages in its fixed currency situation. Although the country's economic system is far from perfect, one of the most eminent testaments to its economic recovery is its plan to join the Euro zone in 2014. Doing so would enable the country to utilize the Euro as its form of currency, which would also mean it would have to finance other countries with economic problems that are part of that currency, such as Spain.

However, the interview explains that the principle means for the fiscal recovery of Latvia is the certification and implementation of a fiscal compactor, which is a treaty specifically designed to strengthen the discipline of a particular country. This treaty allowed for Latvia to institute an adjustment plan from 2008 to 2012 that resulted in a 17% growth in its Gross Domestic Product and to attain the status of one of the fastest growing countries in Europe.

According to the prime minister, the reason his country was able to recover so well from the global economic crisis, whereas others that attempted many of the same measures that Latvia did have not, is that it was able to "frontload" (No author, 2012) its adjustment program early in the country's economic reforms. Doing so helped to restore financial stability in the Baltic region by 2009. More importantly, once stability was regained the country immediately returned to its economic gross by emphasizing industrial production and on exporting industrial production in particular.

The principle concept that this article demonstrates is the efficacy of national economic reform measures, particularly those involving a fiscal compactor. Latvia's financial recovery is a virtual model of what countries can do in order to balance their economies and increase their gross national product. What is key about using a fiscal compactor is the fact that it operates best in a fixed currency system such as that employed by Latvia.

and, although this analysis of the country's economy required a reduction in wages and prices -- which led to many people emigrating from Lativa, it ultimately enabled Latvia to see growth in its gross domestic product and to emerge favorably from the experience. Intrinsically related to the conception of a fiscal compactor is the implementation strategy of frontloading.

In economic terms, frontloading is assessing all of the fees and reductions of an economic measure early on, which allows the country's economy to stabilize -- regardless of how desperate or how favorable such a stabilization is. In the case of Latvia, once its economy had reached a point in which it was no longer spiraling the way it was in the middle of the past decade, the country could being to implement measures to boost it.

This included addressing the issue of the rate of employment and the rate of emigration, which was largely a result of the process of the fiscal compactor. As such, Latvia was able to continue its financial recovery by concentrating on industrial production and building favorable trade while exporting its services. The article contributed significantly to the understanding of the notions of a fiscal compactor as well as to frontloading.

The way in which its help was most efficacious was through the comparison that the prime minister set up between Latvia and Greece. Greece has been in the headlines of late for having substantial monetary problems at the national level. What is significant about this fact is that Greece's financial woes occurred at approximately the same time that Latvia's national economy suffered at well.

Dombrovskis alluded to the effectiveness of both frontloading and the use of a fiscal compactor suggesting that Greece also attempted to internally evaluate its prices and wages, yet did not make the necessary adjustments as early as Latvia did. Essentially, Greece did not choose to frontload the ramifications of the analysis of its budgetary discipline that a fiscal compactor provides. The results are.