No Slide TitleAfter Crisis:
Policy Reforms for Effective Management of State Owned Enterprises
in Latvia
Mr. Daniels Pavuts
Minister of Economics
Latvijas Republikas Ekonomikas ministrija Ministry of Economics
Republic of Latvia
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Internal devaluation vs. external devaluation
Reasons for choosing ‘internal devaluation’:
Fixed exchange rate with the euro – a precondition for joining the
eurozone in 2014
The need for economic and governance reforms
Opportunity to balance the economy and change the development model
to sustainable growth
Social and economic costs of internal devaluation
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relative to GDP, 2008-2011
Fiscal stability – a precondition for healthy economic environment
and sustainable growth
The government debt of Greece is 150% of GDP, while that of Latvia
is less than 50% of GDP
Budget deficit will be reduced below 3% of GDP in 2012
Low inflation: 3.3% in 2009, -1.2% in 2010, 4% in 2011
Current account surplus: 8.6% in 2009, 3.6% in 2010
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Note: Decomposition of Latvian exports share’s growth to the EU by
using a permanent market share analysis (%)
-21.1%
+28.5%
Latvian Story:
Izmantojot pastvgs tirgus daas analzi, Ekonomikas ministrija ir
veikusi Latvijas preu eksporta dinamikas analzi uz ES27
valstm.
Šaj slaid redzams, ka 2009.gad, kad bija vrojams visstraujkais
eksporta apjomu kritums, tas pamat bija saistts ar pieprasjuma
samazinšanos msu tirdzniecbas partnervalsts un tikai aptuveni 6%no
eksporta apjomu samazinjuma bija saistta ar msu konkurtspjas
pasliktinšanos.
2010.gad preu eksports uz ES valstm pieauga par vairk k 28%. Turklt
gandrz pusi no visa pieauguma bija saistts ar msu konkurtspjas
uzlabošanos.
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Demand for Reform
Fiscal consolidation and focus on productivity has created a demand
for effective government and policy reform
Effective management of state owned enterprises (SOE) in Latvia is
one of such reforms
- Reguljums visprgs
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Latvia is a shareholder directly and indirectly in more than 140
enterprises, including 74 fully owned (from Latvenergo with
turnover ~ EUR 712 million to National Symphony Orchestra)
More than 52 thousand people were employed in SOE (that is ~ 5 % of
total employed)
State of play
Issues regarding state ownership function and SOE is competence of
Cabinet of Ministers (government)
Tasks to improve SOE governance are defined in policy documents and
strategies (Strategic Development Plan 2010.-2013, Declaration of
the Intended Activities of the Cabinet of Ministers (25.10.2011)
e.t.c.)
- Reguljums visprgs
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At the end of 2009 total assets of SOEs amounted to EUR 10.17
billion
Combined turnover of EUR 3.2 billion (17.2% of GDP)
The average net profit margin was 5.9% in 2009
Resilient EBITDA (earnings before interest, taxes, depreciation and
amortization) in crisis, low but steady dividend flow
State of play
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Main issues (continued)
Return on invested capital could be greater - total return on
equity of SOEs, excluding financial sector, was 7% in 2009
Governance is decentralised - managed by 11 line ministries
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LATVIA
There is clear tendency in Europe to go towards centralized
model
Transition period is needed to accomplish this aim - implementation
of dual model of SOE governance is under political discussion in
Latvia
Key reforms up to 2013
It can be done by dividing supervision functions between
Centralised SOE Manager (to be established) and respective line
ministries
_1375088209.doc
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Concept of principles for engagement of public person in business
activities - submitted to Cabinet of Ministers, decision in
December 2011
Key reforms up to 2013 (continued)
Aim is to reassess principles for engagement of public person in
business activities
Reorganize SOEs that are performing only public administrative
functions into public state agencies
Decrease public sector engagement in business
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Concept of SOE governance – currently under formal review among
ministries
Key reforms up to 2013 (continued)
Implementation of OECD corporate governance principles
including:
setting up Centralized SOE manager (status, functions)
measuring SOEs performance (presently decentralized managed by line
ministries; common reporting system as pilot project is
ongoing)
ensuring transparency on state capital
revising dividend policy
reconsidering remuneration policy
Advise government, line ministries, SOE on corporate
governance
Definition of specific, measurable business objectives (economic
and social); an annual evaluation of the results achieved
Provide regular assessment whether to maintain shares as
state-owned of a particular SOE
General supervision of SOEs and shares disposal
implementation, decision making on individual dividend
payments
Ensure record-keeping and information transparency regarding use of
state capital
Centralised SOE Manager
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Phone: 67013101
Fax: 67280882
E-mail:
[email protected]
Latvijas Republikas
Ekonomikas ministrija
2011 est. budget deficitCurrent account deficit, 2H 2011 (rs)
Current account deficit, 2007 (rs)
Source: The Economist, Eurostat
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3210
3367
200720082009
