1. pants

The Latvian economy has

experienced high and robust growth in a low inflation environment

over the last two years. Real GDP grew at 61/2 percent in 2000

and 83/4 percent during the first half of 2001. Growth has been

broad based and strongly supported by investment. At the same

time, inflation has remained subdued, with the twelve-month

inflation rate at 31/2 percent in September 2001. Latvia's

vulnerability to external shocks has diminished, as the external

current account deficit has declined substantially,

notwithstanding the appreciation of the lats vis-à-vis the euro.

This was accompanied by strong FDI inflows, which helped finance

the external current account deficit to a large extent, thereby

keeping external debt indicators in check.