Page 197 - DMGT545_INTERNATIONAL_BUSINESS

International Business

notes LATVIA turned to a group led by the IMF and the European Union for a €7.5bn loan
in 2008 after its second-biggest bank failed. Latvia’s programme would be like an Irish
programme; the country is keeping its exchange rate fixed to the euro, while letting wages
and prices fall to restore competitiveness. The economy expanded 2.7pc in the third quarter
for the first time since the Baltic state followed the European Union’s toughest austerity
measures. The economy is recovering after shrinking about 25pc through nine quarters
of decline. Yarkin Cebeci, an economist at JP Morgan Chase, estimates that growth next
year may reach 3pc as industrial production expands 20pc. Standard & Poor’s and Fitch
Ratings, which cut Latvia’s credit rating to junk in 2009, raised their outlooks to stable this
year. Moody’s Investors Service, which rates Latvia Baa3, its lowest grade, also raised its
outlook to stable. Latvia is still making cuts as it battles to bring its budget deficit down
to 6pc of GDP next year. Lawmakers already approved austerity measures equal to about
14pc of economic output since the IMF and EU bailout.
GREECE
Population: 11.2m
Currency: Euro

10-year yield: 11.2pc
Unemployment: 12.2pc
S&P: BB+
THE only Eurozone country that has had to call on the IMF for help, Greece activated
a €110bn package of loans from the EU and IMF in May to bail out the country. Ireland
would probably use the same mechanism if leaders here turned overseas for help. Prime
Minister George Papandreou has since cut wages and pensions and raised taxes on fuel,
tobacco and alcohol, but the measures have sparked massive protests. He came to power
a year earlier with promises to raise salaries and cut taxes. The Greeks may have been
unhappy but the markets liked the cutbacks and the spread on Greek 10-year bonds, and
German bonds of the same maturity narrowed to 649 basis in early October -- close to Irish
levels -- but jumped again after Mr Papandreou suggested he might call elections just 18
months after the previous elections because his political support was dwindling.

Other cutbacks planned include the merger of 1,034 local municipalities into 325, and the
replacement of 67 regional and prefectures with 13 more powerful regional authorities.
Questions
1. Discuss the case in elaborative way.

2. What was the problem behind the case study
Source: http://www.independent.ie/national-news/case-studies-what-the-imf-has-done-2420251.html

9.6 summary

This unit attempts to give an overview of the functions in as simple manner as possible.

l z To review, we have looked at the relationship between institutions and long run economic
growth.

l z This growing field of research may offer us a new insight into the dynamics of economic
growth within and among various economies.

192 lovely Professional university