Annual Report on Exchange Arrangements and Exchange Restrictions 2005
Chapter

LATVIA

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2005
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(Position as of May 31, 2005)

Status Under IMF Articles of Agreement
Article VIIIDate of acceptance: June 10, 1994.
Exchange Arrangement
CurrencyThe currency of Latvia is the Latvian lats.
Exchange rate structureUnitary.
Classification
Conventional pegged arrangementEffective January 1, 2005, the lats is pegged to the euro at the rate of LVL 0.702804 per €1 (previously, the lats was pegged to the SDR at the rate of LVL 0.7997 per SDR 1). The Bank of Latvia (BOL) quotes daily the fixing rates of the lats against 33 convertible currencies and the price of gold. These rates are used for accounting purposes and are valid through the next day. Effective January 1, 2005, the BOL quotes fixed buying and selling rates in euros only (previously, the BOL quoted real-time buying and selling rates for the currencies in the SDR basket, i.e., dollars, euros, pounds sterling, and yen). The spread between the buying and selling rates is 2%. On May 1, 2005, Latvia adopted the ERM II
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketAll forward transactions may be conducted in the interbank market, with most liquidity in maturities of up to one year.
Arrangements for Payments and Receipts
Prescription of currency requirementsn.r.
Payments arrangements
Bilateral payments arrangements
InoperativeInoperative bilateral payments agreements are maintained with Azerbaijan and Kazakhstan.
Regional arrangementsOn May 1, 2004, Latvia became a member of the EU.
Administration of controlGovernment decisions adopted by the cabinet of ministers and approved by parliament prevail in foreign exchange and trade matters, but the authority to issue regulations governing foreign exchange transactions has been delegated to the BOL. All foreign exchange transactions must be effected through authorized banks and enterprises licensed by the Financial and Capital Markets Commission and the BOL, respectively.
International security restrictions
In accordance with IMF Executive Board Decision No. 144-(52/51)On May 18, 2005, the Republic of Latvia notified the IMF that certain exchange restrictions are imposed in accordance with the relevant EU regulations and UN Security Council resolutions.
In accordance with UN sanctionsMeasures have been taken to freeze funds and economic resources of the following: (1) certain persons indicted by the International Criminal Tribunal for the former Federal Republic of Yugoslavia; (2) certain persons who threaten the peace and reconciliation process in Côte d’Ivoire; (3) certain persons and entities associated with the former government of Iraq; (4) certain persons and entities associated with the former Taylor regime in Liberia; (5) persons and entities associated with Osama Bin Laden, Al-Qaida, and the Taliban; and (6) persons, groups, and entities associated with terrorism. Similar restrictions are also imposed against Myanmar and Zimbabwe.
Payments arrearsNo.
Controls on trade in gold (coins and/or bullion)
Controls on domestic ownership and/or tradeA license is required.
Controls on exports and imports of banknotesNo.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyYes.
Held abroadYes.
Accounts in domestic currency held abroadYes.
Accounts in domestic currency convertible into foreign currencyYes.
Nonresident Accounts
Foreign exchange accounts permittedYes.
Domestic currency accountsYes.
Convertible into foreign currencyYes.
Blocked accountsAccounts belonging to individuals suspected of engaging in money-laundering transactions are blocked.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsNo.
Documentation requirements for release of foreign exchange for importsNo.
Import licenses and other nontariff measures
Negative listNo licensing requirements apply except for imports of alcohol (excluding beer), tobacco products, fuel, and other items that pose a health or safety risk. Licensing is automatic except for pyrotechnic products, arms and ammunition, combat vehicles, and prepared explosives. The processing time for license applications is no more than 10 business days, and license fees reflect only processing costs.
Import taxes and/or tariffsEffective May 1, 2004, when Latvia joined the EU, the EU Combined Nomenclature, EU Common Customs Tariffs, and the Free Trade Agreements of the EU apply. Previously, under the Law on Customs Duty (Tariffs), two specific tariffs applied to sugar and cigarettes. For nonagricultural goods, the average basic ad valorem tariff rate was 1.82%, and the average MFN rate was 1.11%; for agricultural goods, the average basic rate was 16.61%, and the average MFN rate was 11.39%. Some goods were exempt from customs duties.
Prior to joining the EU, Latvia maintained trade and economic cooperation agreements that provided MFN status with Armenia, Azerbaijan, Belarus, Bulgaria, China, the Czech Republic, the EFTA, Estonia, the EU, Hungary, Lithuania, Moldova, Poland, Russia, the Slovak Republic, Slovenia, Tajikistan, Turkey, Turkmenistan, Ukraine, and Uzbekistan.
State import monopolyNo.
Exports and Export Proceeds
Repatriation requirementsNo.
Financing requirementsNo.
Documentation requirementsNo.
Export licensesNo.
Export taxesNo.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersNo.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsNo.
Restrictions on use of fundsNo.
Capital Transactions
Controls on capital transactionsYes.
Controls on capital and money market instrumentsNo.
Controls on derivatives and other instrumentsNo.
Controls on credit operationsNo.
Controls on direct investment
Inward direct investmentForeign investors are not allowed to hold more than 49% of shares in companies organizing raffles and gambling, except for investors from the EU, associated countries, and countries with which Latvia has concluded bilateral agreements.
Controls on liquidation of direct investmentNo.
Controls on real estate transactions
Purchase locally by nonresidentsThe purchase of buildings is permitted. The purchase of land is not restricted, except for land near borders and environmentally protected areas. Land to be used for agricultural and forestry purposes may be bought only if one-half of the paid share capital of the company belongs to (1) citizens of Latvia or to citizens of countries with which Latvia has an agreement on promotion of foreign investment; (2) a group of individuals in the previous categories; or (3) a public joint-stock company, whose shares are quoted on the stock exchange.
Controls on personal capital transactionsNo.
Provisions specific to commercial banks and other credit institutions
Open foreign exchange position limitsThe open foreign currency position is limited to 10% of capital for any single foreign currency (excluding the euro) and 20% of own funds for all foreign currencies (excluding the euro).
On resident assets and liabilitiesYes.
On nonresident assets and liabilitiesYes.
Provisions specific to institutional investors
Limits (max.) on securities issued by nonresidentsYes.
Currency-matching regulations on assets/liabilities compositionYes.
Other controls imposed by securities lawsA mutual fund may invest only in demand and time deposits, with original maturity not exceeding one year in banks licensed in the EU, the EEA, or an OECD member country.
A closed-end fund may invest in real estate located and registered only in the EU, the EEA, or an OECD member country.
Changes During 2004
Imports and import paymentsMay 1. With Latvia’s accession to the EU, the EU Combined Nomenclature, EU Common Customs Tariffs, and the Free Trade Agreements of the EU went into effect.
Changes During 2005
Exchange arrangementJanuary 1. The lats was pegged to the euro at the rate of LVL 0.702804 per €1 (previously, it was pegged to the SDR at the rate of LVL 0.7997 per SDR 1). The BOL began to quote fixed buying and selling rates in euros only.
May 1. Latvia adopted the ERM II.

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