Latvia: Navigating the Strait of Messina Harvard Case Solution & Analysis

After executing substantial economical and political reforms to be able to meet the requirements for EU membership in 2004, its sights had turned toward joining the single-currency eurozone, pegging its currency to the euro in 2005 as a step toward that goal.

From 2000 to 2007, Latvia realized faster GDP growth than any EU state. However, when substantial inflows of capital suddenly dried up in 2008, Latvia had to get a financial rescue package from the IMF, World Bank, EU, and many regional states to be able to prevent a full blown fiscal and currency crisis.

Latvia then adopted an aggressive economic adjustment program centered on keeping its currency peg, which meant to be able to drive down the real exchange rate competitiveness would need to be restored by reducing public expenses, wages, and domestic costs. Latvia's policy program and initial results are discussed in the case.

PUBLICATION DATE: April 01, 2011 PRODUCT #: 711053-PDF-ENG

This is just an excerpt. This case is about FINANCE & ACCOUNTING

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