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  • April 2011 (Revised December 2017)
  • Case
  • HBS Case Collection

Latvia: Navigating the Strait of Messina

By: Rafael Di Tella, Rawi Abdelal and Natalie Kindred
  • Format:Print
  • | Language:English
  • | Pages:31
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Abstract

This case describes Latvia's transition from a Soviet republic into an EU member, its economic boom and subsequent bust in 2008, and its policy response. After implementing significant economic and political reforms in order to qualify for EU membership in 2004, Latvia had turned its sights toward joining the single-currency eurozone, pegging its currency to the euro in 2005 as a step toward that goal. From 2000 to 2007, Latvia achieved faster GDP growth than any EU state. However, when large inflows of capital suddenly dried up in 2008, Latvia had to obtain a financial rescue package from the IMF, World Bank, EU, and several regional countries in order to avoid a full-blown financial and currency crisis. Latvia then adopted an aggressive economic adjustment program centered on maintaining its currency peg, which meant competitiveness would have to be restored by reducing domestic prices, wages, and public expenditures in order to drive down the real exchange rate. Latvia's policy program and initial results are discussed in the case.

Keywords

Currency Exchange Rate; Competitive Strategy; Economic Growth; Policy; Financial Crisis; Economic Slowdown and Stagnation; Latvia

Citation

Di Tella, Rafael, Rawi Abdelal, and Natalie Kindred. "Latvia: Navigating the Strait of Messina." Harvard Business School Case 711-053, April 2011. (Revised December 2017.)
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About The Authors

Rafael M. Di Tella

Business, Government and the International Economy
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Rawi E. Abdelal

Business, Government and the International Economy
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Related Work

    • April 2013
    • Faculty Research

    Latvia: Navigating the Strait of Messina (TP)

    By: Rawi Abdelal, Rafael Di Tella and Natalie Kindred
    • April 2011 (Revised December 2017)
    • Faculty Research

    Latvia: Navigating the Strait of Messina

    By: Rafael Di Tella, Rawi Abdelal and Natalie Kindred
Related Work
  • Latvia: Navigating the Strait of Messina (TP) By: Rawi Abdelal, Rafael Di Tella and Natalie Kindred
  • Latvia: Navigating the Strait of Messina By: Rafael Di Tella, Rawi Abdelal and Natalie Kindred
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