1.What kind of crisis was Latvia experiencing in 2008, a currency crisis, a bank
ID: 1096728 • Letter: 1
Question
1.What kind of crisis was Latvia experiencing in 2008, a currency crisis, a banking crisis, or a debt crisis?
2.If the IMF had not stepped in with support, what do you think might have occurred?
3.Could the Latvian government have headed off the 2008 crisis? What policy actions could it have to do this? What might the economic and political consequences of those actions have been?
4. what do you think the short-term consequences of the imf policies will be for latvia? what might the long term consequences be?
Explanation / Answer
1. Latvia was experiencing Banking crisis in the year 2008.
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2. Had the IMF not stepped in for Support, Latvia would have literally struggled a lot and the Latvian banks would have defaulted their loand to foreign and domestic financial investors. The banking system would have completely collapsed as the government did not have enough foreign currency to keep the banks on the run. This would have resulted in great recession and raised to increased Unemployment and raised proverty. The country should literally be drooned by the extent of the crisis had IMF not supported them at the right time.
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3. No, the Latvian government wouldnt have headed off the crisis, since they were literally running short of funds and they were finding all possible alternatives to come out of the same. Even if they wanted to do some think new they could have tried the following policy actions:
a. To inform all the entrepreneurs to submit their black money details. By informing them to submit the details of black money, the government can ask them to pay a one time tax for the same and also ask them to show the same as working capital for new business venture.
b. By bringing in foreign currency by selling the stocked gold in global market.
c. By lapsing the rates of tourism they could have improved the flow of foreign funds.
d. By getting loan from world bank they could have overcome the situation.
The economic consequences of the above mentioned actions will be as follows:
a. When black money comes into account, the tax flows in. Hence the governments will be able to generate cash inflow to sustain the economy.
b. When new business are started by the entrepreneurs, this creates job opportunity and thus will reduce poverty.
c. When tourism imcreases, foriegn currency will flow in from other countries there by making the economy sustain the crisis.
The political consequences will be as follows:
a. The government would have held in high esteem by one and all globally to think of all these reforms and they would have stayed in power till the time the party existed.
b. The party will be praised high for their tactics and strategy.
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4. The short-term consequences on the IMF policies for Latvia are as follows:
a. Immediate financial support to the drooning banks.
b. The bank will not file for bankruptcy there by ensuring the future of all the depositors.
c. Unemployment and poverty will not raise.
The Long-Term consequences on the IMF policies for Latvia are as follows:
a. The economy was able to revive itself to a good economic position after the crisis.
b. The latvian government was able to generate new jobs for the people.
c. Latvia would have increased the immigration and also would have arrested emmigration.
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