Case Study - Economic Turmoil in Latvia - 1006 Words

Case study 4 – Economic Turmoil in Latvia 1.) In 2008 Latvia experienced a banking crisis that stemmed from a poorly regulated banking sector. The banking sector was using aggressive lending to grow the increased inflow of foreign capital, most of which came from Russia. This lead to a property bubble, similar to what was happening in the United States of America (US), prices were being bid up by borrowers who had access to cheap loans. Before the government could step in to control the bubble that was created the property bubble in the US burst sending a rippling affect through the world. This was hardest felt by the banking sector, which now had to reclaim their loans while investors were withdrawing their money as quickly as they†¦show more content†¦The Latvian government should have monitored the lending of loans by the private financial institutions stricter and ensured the credit growth never got to the point it did. If the government dictated that the banks were to manage their lending policies tighter then the Latvian citizens would not have had access to such vast quantities of inexpensive credit and thus would not have had the means to create such demand in the market leading to double digit inflation. Alternatively the Latvian government could of increased interest rates to slow down borrowing as a pre-emptive maneuverer to avoid the impeding economic meltdown. The sooner the government acted on curbing the unsustainable growth the less an impact the crises would of had on the economy as well as the impact of the necessary interventions implemented to stop the economic downturn. Most believed however that the Latvian government should have opted to devalue the currency which could have resulted in a swifter recovery with less consequences and hardship economically. However if the Latvian government decided for the devaluation of the Lat they would have seriously hampered their efforts to adopt the Euro as their national currency. Countries such as Greece and Spain are experiencing the same situation currently but are unable to devalue the currency as they have adopted the Euro as their currency.Show MoreRelatedCase Study - Economic Turmoil in Latvia999 Words   |  4 PagesCase study 4 – Economic Turmoil in Latvia 1.) In 2008 Latvia experienced a banking crisis that stemmed from a poorly regulated banking sector. The banking sector was using aggressive lending to grow the increased inflow of foreign capital, most of which came from Russia. This lead to a property bubble, similar to what was happening in the United States of America (US), prices were being bid up by borrowers who had access to cheap loans. Before the government could step in to control the bubble thatRead MoreEconomic Turmoil Of Latvi A Case Study Presenting The Economic Challenges With Latvia872 Words   |  4 PagesEconomic Turmoil in Latvia is a case study presenting the economic challenges with Latvia. Latvia is a country of approximately 2.5 million people, and is part of the Baltic States. When the Soviet Union collapsed, Latvia who is one of the three Baltic States gained its independence. Latvia was doing well and was experiencing fast economic growth power-driven by a vibrant private sector (Hill, 2014). The following case study will elaborate more on Latvia economic condition and present questions aboutRead MoreEconomic Turmoil in Latvia1496 Words   |  6 PagesCase Study 5 Economic Turmoil in Latvia September 11, 2014 General Description and Central Issue of the Case The Republic Latvia is a country of 24,938 square miles on the Baltic Sea, with 310 miles of shoreline. 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