January 4, 2011
Santiago, Chile
Latvia is broke… I’m talking flat broke– more than Spain, Greece, California, etc. And because this small Baltic, former Soviet republic is not in the Eurozone, it’s generally been left for dead by the EU’s larger economies save a few handouts here and there.
Latvia has recently taken matters into its own hands, establishing a unique new policy that entitles foreign investors to Latvian residency, as long as they meet minimum criteria.
This is a big deal, and I think it is all part of a new trend that will grow stronger in the coming years: governments competing for residents and citizens.
It’s true that the fat, broke, bloated, dominant economies of the old western hierarchy are in decline– we all know that the EU is a financial disaster zone, and the US is insolvent to the tune of negative $14 trillion (12 zeros).
The way they’re dealing with it is to encroach on civil liberties and financial freedom; many nations like Hungary and France are already taking the radical step of seizing their citizens’ private pensions to cover budget shortfalls. This has also been openly discussed in the US by policy advisors.
It’s cannibalistic, to say the least. Politicians feed on the hard work of their citizens in order to advance their own agendas and cling to power. In these countries, you can bet on higher property and income taxes, new (or higher) national VAT sales taxes, increased death taxes, and capital controls.
On the opposite end of the spectrum are the smaller, leaner, more successful countries. They understand that the key to financial harmony is a symbiotic partnership with talented residents, not the host-virus relationship that the west has adopted.
Singapore is a great example. The government in Singapore understands that its primary mission is to create an environment in which talented people can succeed. They do this by keeping bureaucracy to a minimum, maintaining low tax rates, and providing incentives to foreigners who can add value to the economy.
As we’ve discussed before, many other countries provide their own sets of incentives to foreigners, whether retirees (Panama), entrepreneurs (Chile), investors (New Zealand), or professionals (Hong Kong).
Latvia has just joined the ranks of these countries because they understand that an influx of foreign capital is critical. They will not be able to survive by pecking at their own innards– they must attract foreign investors, and the biggest card they’re carrying is EU residency.
This new policy is controversial, both in Latvia as well as Brussels. EU bureaucrats are beside themselves, already lamenting about the number of Russians who will have unfettered access to Europe’s borderless Schengen area.
It’s possible that Latvia may come under intense pressure to undo the policy in exchange for another bailout from Germany… but even as doubtful as that may be, the larger point is that governments are finally starting to think in new directions to solve their problems.
This is a market-oriented trend that I see continuing for several years, starting with smaller countries like Latvia, and eventually working up to larger countries like the UK… and even, eventually, the US.
I’ll have much more information about this Latvia residency program for premium subscribers, including relevant contact information, in this month’s upcoming edition of Sovereign Confidential. Stay tuned for more.
