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

This case is described Latvia's transition from a Soviet republic to join the EU, its economic boom and bust in 2008, and its policy response. After the implementation of significant economic and political reforms in order to qualify for membership in the EU in 2004, Latvia has turned its sights to join the single currency eurozone binding its currency to the euro in 2005 as a step towards this goal. From 2000 to 2007, Latvia's GDP growth reached faster than any EU member state. However, when a large influx of capital suddenly dried up in 2008, Latvia had to seek financial rescue package from the IMF, the World Bank, the EU and several countries in the region in order to avoid large-scale financial and currency crisis. Latvia then adopted aggressive economic adjustment program focused on maintaining its anchor currency, and hence competitiveness to be restored at the expense of domestic prices, wages and public spending in order to reduce the real exchange rate. Policy program of Latvia and the first results are discussed in the case. "Hide
by Rafael Di Tella, Rawi Abdelal, Natalie Kindred Source: Harvard Business School 31 pages. Publication Date: April 1, 2011. Prod. #: 711053-PDF-ENG

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