1. Planned amendments in 2OP Meeting with European Commission at Ministry of Finance October 1, 2008

2. Content  Challenges faced by Latvian economy  Utilisation of structural funds  Better utilisation of administrative resources  Aid targeting: 2.3.2.4. Activity "High value-added investments“

3. Challenges faced by Latvian economy  Falling GDP increase  GDP outlook Increase in 2008 between 0% and 1% Increase in 2009 between 0% and 2%  GDP increase in manufacturing Negative for last five quarters

4. GDP

5. Challenges for state budget  Budget deficit 1,85% from GDP for 2009 according to draft budget proposal  Government decisions 2009 state budget decreased by 10,67% compared to 2008 Decrease of central government administration  by 5% by December 2008  by 5% by June 2009

6. Utilisation of structural funds  2OP MoEc funds 41% available in 2008 53% available in 2009  Criteria are not approved for 3 activities  Cabinet of ministers regulations are not drafted for 5 activities compromising 25 million lats or 7% of MoEc available funds in 2OP

7. Better utilisation of administrative resources  Consolidate smaller “expensive” activities into 2.3.2.4. Activity "High value-added investments“ 2.3.2.3. Activity "Cluster programm“  Pilot programme financed from state budget  5 clusters 30 000 lats each  Reallocating money, leaving activity 2.3.1.1.2. Sub-activity "Access to international trade markets- strengthening international competitiveness of industry sector" 2.2.1.2.1. Activity "Business angel network“  Financed from holding fund 2.1.2.1.3. Sub-activity "Centers of transfer of tehnologies“  Total public financing 25 million lats  Place activity in 2.1.2.Measure 'Innovations'

8. Aid targeting: 2.3.2.4. Activity "High value-added investments“  Hi tech industries (as defined by OECD and EUROSTAT)  Exporting industries  Max aid intensity 30%  Aid amount 1 – 3 million lats  Eligible costs Equipment, technologies, buildings

9. Hi tech industries (as defined by OECD and EUROSTAT, according to NACE Rev 1.1. codes)  Manufacturing: 24 Manufacture of chemicals and chemical products 29 Manufacture of machinery and equipment n.e.c. 30 Office equipment and computer production 31 Manufacture of electrical machinery and apparatus n.e.c. 32 Radio, TV and communication equipment production 33 Medical delicate and optical instruments, clock production 34 Car, tailer and half-trailer production 35 Other transport manufacturing  Services 64.2 Telecommunications 72 Computers and related activities 73 Research and development  http://europa.eu.int/estatref/info/sdds/en/htec/htec_agg _nace.pdf http://europa.eu.int/estatref/info/sdds/en/htec/htec_agg _nace.pdf

10. Exporting industries (data from Central Statistical Bureau of Republic of Latvia) NACE 1.1. Rev. Average amount of export 2005-2007 DMDMManufacture of transport equipmentmore than 69% DBManufacture of textiles and textile productsmore than 69% DGDG Manufacture of chemicals, chemical products and man- made fibresmore than 69% DKManufacture of machinery and equipment n.e.c.more than 69% DCManufacture of leather and leather products60% - 69% DManufacture of wood and wood products60% - 69% DJ Manufacture of basic metals and fabricated metal products60% - 69% DLManufacture of electrical and optical equipmen60% - 69% CMining and quarrying50% - 59% DNManufacturing n.e.c.50% - 59% Otherless than 50%