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Latvia's annexation by the Soviet Union after World War II led to a radical transformation of its economy. Its comparatively well-developed infrastructure and skilled work force motivated Soviet central planners to establish some relatively sophisticated industries in the republic. As a result of the comparably higher efficiency of its economy, Latvia enjoyed one of the highest standards of living among the republics of the former Soviet Union, as indicated by a per capita income that was 30 percent above the Union average. However, as occurred elsewhere in the former Soviet Union, real economic growth steadily declined over the years. The abandonment of central planning by the Soviet authorities in the second half of the 1980s did not reverse this economic decline. Instead, the increasing economic and political turmoil aggravated macroeconomic imbalances and led the entire Soviet economy into crisis. Latvia's drive toward political and economic independence gained momentum during this period and led to its renewed independence in September 1991. This has enabled Latvia to take full control of its domestic economic policies. This study focuses on macroeconomic and systemic reform issues and provides an overview and analysis of the main sectors. Quantitative information is presented in a statistical appendix.

Publisher: World Bank

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