Annual Report on Exchange Arrangements and Exchange Restrictions, 2007
Chapter

LATVIA

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
October 2007
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(Position as of March 31, 2007)

Status under IMF Articles of Agreement
Article VIIIDate of acceptance: June 10, 1994.
Exchange Measures
Restrictions and/or multiple currency practicesNo restrictions as reported in the latest staff report as of December 31, 2006.
International security restrictions
In accordance with IMF Executive Board Decision No. 144-(52/51)On March 21, 2007, the authorities notified the IMF that in accordance with EU regulations and the relevant UN Security Council resolutions, certain restrictions are maintained with respect to the funds and resources of (1) certain persons indicted by the International Criminal Tribunal for the Former Yugoslavia (ICTY), and Slobodan Milosevic and persons associated with him; (2) certain persons and entities involved in the situation in Côte d’Ivoire; (3) certain persons and entities associated with the former government of Iraq; (4) certain persons suspected of involvement in the assassination of former Lebanese Prime Minister Rafik Hariri; (5) persons acting in violation of the arms embargo with regard to the Democratic Republic of the Congo; (6) certain persons impeding the peace process and breaking international law in the conflict in the Darfur region of Sudan; (7) persons and entities associated with Osama bin Laden, Al-Qaida, and the Taliban; (8) persons, groups, and entities associated with terrorism; and (9) President Lukashenko and certain officials of Belarus (effective May 18, 2006). Restrictions on financial transactions are also in place against Liberia, Myanmar, and Zimbabwe (restrictions against Myanmar were renewed May 29, 2006, and amended September 25, 2006).
References to legal instruments and hyperlinksCouncil Regulation (EC) No. 1411/2006 of September 25, 2006, amending Regulation (EC) No. 817/2006 renewing the restrictive measures with respect to Myanmar and repealing Regulation (EC) No. 798/2004 (http://eur-lex.europa.eu/LexUriServ/site/en/oj/2006/l_267/l_26720060927en00010001.pdf); Council Regulation (EC) No. 817/2006 of May 29, 2006, renewing restrictive measures with respect to Myanmar and repealing Regulation (EC) No. 798/2004 (http://eur-lex.europa.eu/LexUriServ/site/en/oj/2006/l_148/l_14820060602en00010029.pdf); Council Regulation (EC) No. 765/2006 of May 18, 2006, concerning restrictive measures against President Lukashenko and certain officials of Belarus (http://eur-lex.europa.eu/LexUriServ/site/en/oj/2006/l_134/l_13420060520en00010011.pdf); Council Regulation (EC) No. 305/2006 of February 21, 2006, imposing specific restrictive measures against certain persons suspected of involvement in the assassination of former Lebanese Prime Minister Rafik Hariri (http://eur-lex.europa.eu/LexUriServ/site/en/oj/2006/l_051/l_05120060222en00010008.pdf); Council Regulation (EC) No. 1184/2005 of July 18, 2005, imposing certain specific restrictive measures directed against certain persons impeding the peace process and breaking international law in the conflict in the Darfur region in Sudan (http://eur-lex.europa.eu/LexUriServ/site/en/oj/2005/l_193/l_19320050723en00090016.pdf); Council Regulation (EC) No. 1183/2005 of July 18, 2005, as amended, imposing certain specific restrictive measures directed against persons acting in violation of the arms embargo with regard to the Democratic Republic of the Congo (http://eur-lex.europa.eu/LexUriServ/site/en/oj/2005/l_193/l_19320050723en00010008.pdf); Council Regulation (EC) No. 560/2005 of April 12, 2005, as amended, imposing certain specific restrictive measures directed against certain persons and entities involved with the situation in Côte d’Ivoire (http://eur-lex.europa.eu/LexUriServ/site/en/oj/2005/l_095/l_09520050414en00010008.pdf); Council Regulation (EC) No. 1763/2004 of October 11, 2004, as amended, imposing certain restrictive measures in support of effective implementation of the mandate of the ICTY (http://eur-lex.europa.eu/LexUriServ/site/en/oj/2004/l_315/l_31520041014en00140023.pdf); Council Regulation (EC) No. 872/2004 of April 29, 2004, concerning further restrictive measures in relation to Liberia (http://eur-lex.europa.eu/LexUriServ/site/en/oj/2004/l_162/l_16220040430en00320037.pdf); Council Regulation (EC) No. 314/2004 of February 19, 2004, concerning certain restrictive measures with respect to Zimbabwe (http://eur-lex.europa.eu/LexUriServ/site/en/oj/2004/l_055/l_05520040224en00010013.pdf); Council Regulation (EC) No. 1210/2003 of July 7,2003, as amended, concerning certain specific restrictions on economic and financial relations with Iraq and repealing Regulation (EC) No. 2465/96 (http://eur-lex.europa.eu/LexUriServ/site/en/oj/2003/l_169/l_16920030708en00060023.pdf); Council Regulation (EC) No. 881/2002 of May 27, 2002, as amended, imposing certain specific restrictive measures directed against certain persons and entities associated with Osama bin Laden, the Al-Qaida network, and the Taliban and repealing Council Regulation (EC) No. 467/2001 prohibiting the export of certain goods and services to Afghanistan, strengthening the flight ban, and extending the freeze of funds and other financial resources with respect to the Taliban of Afghanistan (http://eur-lex.europa.eu/LexUriServ/site/en/oj/2002/l_139/l_13920020529en00090022.pdf); Council Regulation (EC) No. 2580/2001 of December 27, 2001, as amended, on specific restrictive measures directed against certain persons and entities with a view to combating terrorism (http://eur-lex.europa.eu/LexUriServ/site/en/oj/2001/l_344/l_34420011228en00700075.pdf); Council Regulation (EC) No. 2488/2000 of November 10, 2000, as amended, maintaining a freeze of funds in relation to Slobodan Milosevic and those persons associated with him and repealing Regulations (EC) Nos. 1294/1999 and 607/2000 and Article 2 of Regulation (EC) No 926/98 (http://eur-lex.europa.eu/LexUriServ/site/en/oj/2000/l_287/l_28720001114en00190037.pdf.
Exchange Arrangement
CurrencyThe currency of Latvia is the Latvian lats.
Exchange rate structureUnitary.
Classification
Conventional pegged arrangementThe lats is pegged to the euro at the rate of LVL 0.702804 per €1 in the context of the ERM II. The Bank of Latvia (BOL) daily fixes the 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. The BOL quotes fixed buying and selling rates in euros only. The spread between the buying and selling rates is 2%.
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.
References to legal instruments and hyperlinksn.a.
Arrangements for Payments and Receipts
Prescription of currency requirementsn.r.
Payments arrangements
Regional arrangementsLatvia is 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 Market Commission (FCMC) and the BOL, respectively.
Payments arrearsNo.
Controls on trade in gold (coins and/or bullion)Gold articles for the domestic market are subject to compulsory hallmarking. Market surveillance control on domestic trade with gold articles is also in place.
On domestic ownership and/or tradeThe location of business activity must be registered with the State Assay Supervision Inspectorate.
Controls on exports and imports of banknotesEffective July 1, 2006, all natural persons must declare domestic currency or foreign exchange cash amounting to €10,000 or more when crossing the state border of Latvia (both leaving and entering the country) at the external border of the EU.
On exportsYes.
On importsYes.
References to legal instruments and hyperlinksLaw on the Control and Marking of Articles of Precious Metals; Procedures for the Registration of Places of Economic Activity with Precious Metals, Precious Stones, and Articles Thereof; Procedures for Their Mandatory Assaying and Marking; Procedures for the Safekeeping of Precious Metals, Precious Stones, and Articles Thereof That Are not Assayed; www.vpui.gov.lv.
Regulation (EC) No.1889/2005 of the European Parliament and of the Council of October 26, 2005, on controls of cash entering or leaving the Community (http://eur-lex.europa.eu/LexUriServ/site/en/oj/2005/l_309/l_30920051125en00090012.pdf); Law on declaring of cash when crossing the state border, in effect as of July 1, 2006 (in Latvian, http://www.likumi.lv/doc.php?id=120369&mode=DOC).
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyYes.
Held abroadYes.
Accounts in domestic currency held abroadYes.
Accounts in domestic currency convertible into foreign currencyYes.
References to legal instruments and hyperlinksn.a.
Nonresident Accounts
Foreign exchange accounts permittedYes.
Domestic currency accountsYes.
Convertible into foreign currencyYes.
Blocked accountsAccounts may be blocked in cases specified by law; e.g., if account holders are suspected of engaging in money laundering transactions. These provisions apply equally to resident and nonresident accounts, irrespective of the currency of denomination.
References to legal instruments and hyperlinksLaw on the Prevention of Laundering of Proceeds Derived from Criminal Activity: www.fktk.lv/law/general/laws/article.php?id=16381.
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 listThe following groups of goods are subject to licensing: (1) strategic goods (weapons, ammunition, and other military supplies) and dual-use goods; (2) plants and animals protected by CITES; (3) narcotic substances, psychotropic substances, and precursors; and (4) sources of ionizing radiation and radioactive goods, steel, and some categories of textiles. 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 tariffsThe EU Common Customs Tariffs, the Free Trade Agreements of the EU, and the EU trade measures concerning antidumping and countervailing duties apply.
State import monopolyNo.
References to legal instruments and hyperlinks(1) Regarding strategic goods and dual-use goods: Law on the Movement of Strategic Goods, in effect as of January 5, 2004; Council Regulation (EC) No. 1334/2000 of June 22, 2000, setting up a community regime for the control of exports of dual-use items and technology (http://eur-lex.europa.eu/LexUriServ/site/en/oj/2000/l_159/l_15920000630en00010215.pdf).



(2) Regarding plants and animals protected by CITES: Council Regulation (EC) No. 338/97 of December 9, 1996, on the protection of species of wild fauna and flora by regulating trade therein (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31997R0338:EN:HTML).



(3) Regarding narcotic substances, psychotropic substances, and precursors: Law on the Order of Legitimate Movement of Narcotic and Psychotropic Substances and Medicaments, in force since 1996; Regulation (EC) No. 273/2004 of the European Parliament and of the Council of February 11, 2004, on drug precursors; (http://eur-lex.europa.eu/LexUriServ/site/en/oj/2004/l_047/l_04720040218en00010010.pdf); Council Regulation (EC) No. 111/2005 of December 22, 2004, establishing rules for the monitoring of trade in drug precursors between the Community and third countries; Commission Regulation (EC) No. 1277/2005 of July 27, 2005, establishing rules for Regulation (EC) No. 273/2004 of the European Parliament and of the Council on drug precursors and for Council Regulation (EC) No. 111/2005 establishing rules for the monitoring of trade in drug precursors between the Community and third countries (http://eur-lex.europa.eu/LexUriServ/site/en/oj/2005/l_022/l_02220050126en00010010.pdf).



(4) Regarding sources of ionizing radiation and radioactive goods, steel, and some categories of textile goods: Law on Radiation Safety and Nuclear Safety, in effect November 21, 2000.



(5) Regarding EU trade measures concerning antidumping duties: Council Regulation (EC) No. 384/96 of December 22, 1995, on protection against dumped imports from countries that are not members of the European Community (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2005:202:0007:01:EN:HTML).



(6) Regarding EU trade measures concerning countervailing duties: Council Regulation (EC) No. 2026/97 of October 6, 1997, on protection against subsidized imports from countries that are not members of the European Community (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31997R2026:EN:HTML); Commission Regulation (EC) No 1549/2006 of October 17, 2006, amending Annex I to Council Regulation (EEC) No 2658/87 on the tariff and statistical nomenclature and on the Common Customs Tariff (http://eur-lex.europa.eu/LexUriServ/site/en/oj/2006/l_301/l_30120061031en00010880.pdf).



(7) Regarding EU Common Customs Tariff: Council Regulation (EEC) No. 2913/92 of October 12, 1992, establishing the Community Customs Code, and following amendments (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31992R2913:EN:HTML); Commission Regulation (EEC) No. 2454/93 of July 2, 1993, establishing provisions for the implementation of Council Regulation (EEC) No. 2913/92 establishing the Community Customs Code and following amendments (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31993R2454:EN:HTML); 89/197/EEC: Commission Decision of March 3, 1989, concerning the import by member states of fresh meat from Albania (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31989D0197:EN:HTML); Council Regulation (EC) No. 1859/2005 of November 14, 2005, imposing certain restrictive measures with respect to Uzbekistan (http://eur-lex.europa.eu/LexUriServ/site/en/oj/2005/l_299/l_29920051116en00230031.pdf); Council Regulation (EC) No. 1236/2005 of June 27, 2005, concerning trade in certain goods that could be used for capital punishment, torture, or other cruel, inhuman, or degrading treatment or punishment (http://eur-lex.europa.eu/LexUriServ/site/en/oj/2005/l_200/l_20020050730en00010019.pdf); Commission Regulation (EC) No. 29/2006 of January 10, 2006, amending Regulation (EC) No. 2037/2000 of the European Parliament and of the Council with regard to customs codes for bromochloromethane (http://eur-lex.europa.eu/LexUriServ/site/en/oj/2006/l_006/l_00620060111en00270028.pdf).
Exports and Export Proceeds
Repatriation requirementsNo.
Financing requirementsNo.
Documentation requirementsNo.
Export licenses
Without quotasThe following groups of goods are subject to licensing: (1) strategic goods (weapons, ammunition, and other military supplies) and dual-use goods; (2) plants and animals protected by CITES; (3) narcotic substances, psychotropic substances, and precursors; and (4) objects of artistic and historical value.
Export taxesNo.
References to legal instruments and hyperlinks(1) Regarding strategic goods (weapons, ammunition, and other military supplies) and dual-use goods: Law on the Movement of Strategic Goods, in effect as of January 5, 2004; Council Regulation (EC) No. 1334/2000 of June 22, 2000, setting up a Community regime for the control of exports of dual-use items and technology (http://eur-lex.europa.eu/LexUriServ/site/en/oj/2000/l_159/l_15920000630en00010215.pdf).



(2) Regarding plants and animals protected by CITES: Council Regulation (EC) No. 338/97 of December 9, 1996, on the protection of species of wild fauna and flora by regulating trade therein (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31997R0338:EN:HTML).



(3) Regarding narcotic substances, psychotropic substances, and precursors: Law on the Order of Legitimate Movement of Narcotic and Psychotropic Substances and Medicaments, in force since 1996; Regulation (EC) No. 273/2004 of the European Parliament and of the Council of February 11, 2004, on drug precursors (http://eur-lex.europa.eu/LexUriServ/site/en/oj/2004/l_047/l_04720040218en00010010.pdf; Council Regulation (EC) No. 111/2005 of December 22, 2004, establishing rules for the monitoring of trade in drug precursors between the Community and third countries (http://eur-lex.europa.eu/LexUriServ/site/en/oj/2005/l_022/l_02220050126en00010010.pdf); Commission Regulation (EC) No. 1277/2005 of July 27, 2005, establishing implementing rules for Regulation (EC) No. 273/2004 of the European Parliament and of the Council on drug precursors and for Council Regulation (EC) No. 111/2005 establishing rules for the monitoring of trade in drug precursors between the Community and third countries (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2005:202:0007:01:EN:HTML).



(4) Regarding objects of artistic and historical value: Council Regulation (EEC) No. 3911/92 of December 9, 1992, on the export of cultural goods (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31992R3911:EN:HTML); Council Regulation (EC) No. 1210/2003 of July 7, 2003, concerning certain specific restrictions on economic and financial relations with Iraq and repealing Regulation (EC) No. 2465/96 (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32003R1210:EN:HTML).
Payments for Invisible Transactions and Current Transfers
Controls on these transfersNo.
References to legal instruments and hyperlinksn.a.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsNo.
Restrictions on use of fundsNo.
References to legal instruments and hyperlinksn.a.
Capital Transactions
Controls on capital transactionsYes.
Repatriation requirementsNo.
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 nonresidentsForeign natural persons may acquire land under certain restrictions. The procedure whereby land properties may be obtained in towns is governed by the Law on Land Reform in Towns in the Republic of Latvia. Article 21 thereof stipulates that a foreign natural person may not obtain title to land in borderland, in the dune shelter belt of the Baltic Sea and the Riga Gulf, and in the shelter belt of other public water bodies and water courses, except in cases when such land is intended for construction needs pursuant to a town master plan, or land that is intended for agriculture and forestry pursuant to a town master plan. The procedure for buying and selling land property in rural areas is governed by the Law on Privatizing Land in Rural Areas. Article 28 thereof stipulates that during the transition period from May 1, 2004, until May 1, 2011, land may be obtained pursuant to the Civil Law and other laws by EU citizens who wish to engage in business in Latvia as self-employed farmers and have been living in Latvia for three years without leaving and have been active in agriculture for three subsequent years, and by other EU citizens and legal persons licensed in the EU, provided the land is not intended for agriculture and forestry. Article 29 thereof stipulates that a foreign natural person may not acquire title to land in borderland, in natural reserves and natural reserve areas of other protected territories, in the dune shelter belt of the Baltic Sea and the Gulf of Riga, in the shelter belts of public water bodies and water courses, except land plots meant for construction needs pursuant to a local government territory plan, land for agriculture and forestry pursuant to a local government territory plan, and land in mineral deposit fields of national importance. Restrictions do not apply when title to land is acquired by heirs.
Controls on personal capital transactions
Transfer of assetsControls apply to all these transactions.
References to legal instruments and hyperlinksLaw on Land Reform in Towns of the Republic of Latvia; Law on Gambling and Lotteries; Law on Privatizing Land in Rural Areas.
Provisions Specific to the Financial Sector
Provisions specific to commercial banks and other credit institutionsPrudential regulations that are harmonized with EU directives apply.
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).
Provisions specific to institutional investors
Insurance companies
Currency-matching regulations on assets/liabilities compositionThe cover for technical provisions and the technical provisions themselves shall be matched by currency. The FCMC has set forth the permitted deviations in matching the technical provisions with the cover for technical provisions by currency. Insurance undertakings are permitted not to cover technical provisions with matching assets if the application of the matching principle would result in a holding of assets in a currency amounting to no more than 7% of the assets existing in other currencies. They are not authorized to hold matching assets to cover an amount not exceeding 20% of their commitments in a particular currency. The matching principle is considered to be observed if liabilities in lats are covered with assets in lats or euros.
Pension funds
Currency-matching regulations on assets/liabilities compositionThe open foreign currency position of a defined contribution scheme shall not exceed (1) 10% of the assets of that pension scheme in a single foreign currency (excluding the euro) and (2) 20% of the assets of that pension scheme in all foreign currencies (excluding the euro). Funds of a funded pension scheme may be invested in such currency by which payments of the funded pension capital are made in compliance with the following additional conditions: (1) the funds of the scheme may be invested in currencies unmatched with the obligations if the total amount of such investments does not exceed 30% of the assets of the investment plan and (2) investments of funds of the scheme in a currency unrelated to the obligations may not exceed 10% of the assets of the investment plan.
Investment firms and collective investment funds
Limits (max.) on investment portfolio held abroadAn investment 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.
References to legal instruments and hyperlinksCredit Institution Law: www.fktk.lv/law/credit/laws/article.php?id=12835; Law on Private Pension Funds: www.fktk.lv/law/pension/laws/article.php?id=15520; Law on State Funded Pensions: www.fktk.lv/law/pension/laws/article.php?id=14191; Law on Investment Management Companies: www.fktk.lv/law/securities/laws/article.php?id=12832; FCMC Regulations on Currency Matching for Assets and Technical Provisions: www.fktk.lv/law/insurance/regulations/article.php?id=24232.
Changes during 2006
Exchange measuresMay 18. Restrictive measures were put in place against President Lukashenko and certain officials of Belarus.
May 29. Restrictive measures against Myanmar were renewed.
September 25. Restrictive measures against Myanmar were amended.
Arrangements for payments and receiptsJuly 1. Any natural person was required to declare domestic currency or foreign exchange cash amounting to €10,000 or more when crossing the state border of Latvia (both leaving and entering the country) at the external border of the EU.
Changes during 2007
Exchange measuresMarch 21. The authorities informed the IMF of certain financial sanctions imposed against certain countries, individuals, and entities, in accordance with relevant UN Security Council resolutions and EU regulations.

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