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We could learn from our neighbors


2010
07.12

Posted in Beyond Latvia, Economy | 3 Comments »

RIGA – A teacher visits her students’ parents, who are behind on the utility bills. Her job is to urge the parents to pay on their debts and help the state to balance its budget.

Tax collectors, auditors, police officers’ salaries depend on how many fines they issue during their shift.

The once-or-twice-a-year audit of a business now becomes a monthly affair.

Someone stole a t-shirt from a supermarket. Someone else called the police. The authorities sealed the premises, conducted an audit of required documents for the goods at the store. The audit revealed some goods lacked proper documentation, which resulted in the confiscation of the goods. The goods were later resold at a state-owned second-hand store. Luckily, the supermarket’s owner knew when and where those goods would be delivered, so he bought them back at a cheap price, adding his two cents to the state treasury.

Journalists are required to subscribe to the state-owned newspapers where they work. They are also required to force their friends and relatives to subscribe to the newspapers.

Belarus, where this is a common place, is in need of hard cold cash to balance its budget. Minsk is running out of options as its relationship with Moscow has recently soured. And Minsk is not keen on adhering to the EU’s democratic principles, especially ahead of the 2011 presidential elections.

The three Baltic states stand as bastions of freedom and democracy, eager and willing to share their somewhat awkward transformation experience with their neighbors. The three small countries transformed from the Soviet-era command economy into the market paradise pretty quickly. They left the Soviet Union and join NATO and EU. Often, politicians and human rights from the Baltic countries travel to georgias and ukraines of the former Soviet Union to share the experience. Other times, politicians from over there come here to learn – or just drink beer at the Dome Square, or sunbathe at the Jurmala beach.

Maybe now, it’s time for Latvia to learn to balance its budget by means other than budget cuts and tax hikes?

P.S. According to Belarus’ own statistics, 77 percent of the state-owned enterprises are unable to compete on the global market. So, relying on the economy to bring much needed revenues to the state coffers is a waste.

5 comments


2010
06.02

Posted in Economy, Politics, The Dombrovskis government | 5 Comments »

RIGA –  Every once in a while, it’s good to return from hiatus to point out the stupidities of the pre-election life in Latvia. Things in Latvia are so bad that even a fake letter from the head of the IMF Dominique Strauss-Kahn appears as a result of the work of some amateur and incompetent goon, who perhaps serves the people interested in instability head of the elections.  It was reported that the head of the IMF allegedly urged Latvian authorities to move towards “the mini-devaluation” in the letter that appears to be an answer to someone in “the Republic of Latvia.” The letter, which you can see here, had no proper letterhead and subtle grammatical errors.

“We are confident,” the letter said, “that in the long run a[sic] timely decision on this matter will certainly be satisfying to all sides. I would appreciate an [sic] immediate information about progress in your discussions about the widening of the fluctuation band of the Latvian currency against EUR. It will improve the basis for our following in-depth negotiations.”

The letter’s concluding paragraph says, “I am certain that only working in the spirit of mutual understanding and cooperation we can fasten[sic] the overcoming of the crisis in your country.”

Articles, such as a and the, have never been popular among non-native speakers from Latvia. Just read this blog.

Coincidentally, the People’s Party re-discovered the former guarantor of stability and former prime minister Aigars Kalvītis, who was probably stuck in the closet somewhere until the better times would come. He admitted some of mistakes while he was in the office. Kalvītis said the government should have devalued the currency, widened the  corridor to plus/minus 15 percent to help the country get out of the crisis. I can’t say whether it was right or wrong to keep the currency peg, but it appears to be rather interesting that he came out with it at the same time as the letter began circulating suggesting the very same thing.

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Slesers Jab


2010
02.18

Posted in Economy, Parliament | Comments Off

RIGA – As far as local politics is concerned, the most interesting bit from the IMF announcement on disbursement of more than €200 million to the cash-strapped Latvia was this (emphasis mine):

Rigorous execution of the 2010 budget is the first step, and this entails refraining from tax cuts or spending increases, saving any windfall revenues, and using the spending flexibility allowed under the program to ensure a robust safety net for the most vulnerable.

I wonder if Mr. Budget-Deficit-Does-Not-Matter heard that.

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Divided We Fall


2009
08.25

Posted in Economy, The Dombrovskis government, The Godmanis government | 1 Comment »

Historic photograph of the Baltic way taken near the border between Latvia and Lithuania

Historic photograph of the Baltic way taken near the border between Latvia and Lithuania

RIGA – When Estonia, Latvia, and Lithuania celebrated the 20th anniversary of the Baltic Way, I couldn’t help but think about the puzzle that is the Baltic mentality.

Looking at sheer numbers, Latvia should have had a revolution a long time ago. The economy is expected to contract by the record-breaking 18 percent this year. The unemployment has reached 17 percent in the second three-month period. The only positive factor – the inflation – dropped to 2.5 percent last month from 17 percent last May. In hopes of getting a lifesaving loan from the international lenders, the government was forced to slash spending, lay off workers, close hospitals, schools, cut the police. It is performing the kind of tasks that does not make one Mr. Popular or get you re-elected. If this were France or Greece, thousands of angry people would have stormed palaces, rolled over vehicles, set anyone working for the government aflame.

Yet, it’s all quiet on the Baltic front. People go to their summer houses, eat barbecues, farm their their kitchen gardens, go fishing, go about their business. They appear to be disconnected from the slasher-government and apathetic. Of course, there was the January riot when several hundred people, angry at the government, hurled rocks and turned over police cars in the protest. Yet, that was under the previous government whose anthem of ineptitude and incompetence can be summed up in the phrase “Nasing Spešal“.

Whether the unemployed and bitter Latvians are capable to huddle together and withstand the cold and – very likely – expensive winter remains to be seen. However, judging by the few summer protests – against the closure of the Riga First Hospital, for example – it seems people in general feel distant from the government and apathetic about their future. Everyone cares about his or her own little corner of the universe, his own little fiefdom – nevermind the whole country.

The First City Hospital employees protested the closure of their hospital, fearing they would lose their jobs. Yet, no one protested against low quality and considerably high cost of health care in this country. We protest against closure of our schools, but we don’t demand schools produce smart, capable young people that are able to move this country forward.

We’re capable to be united against a foreign enemy, but we’re incapable of uniting for the sake of our country. The unity that fostered the Baltic independence 20 years ago has dissipated – not only among Estonia, Latvia, and Lithuania, but also among Latvians themselves. We lack vision and unity where we should take our country into the future, even though the current crisis provides many opportunities for sweeping and necessary reforms. Divided among ourselves, we’re bound to fall and be left behind as the backwater of the European Union.

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Why Latvia is Poor


2009
05.02

Posted in Economy, European Union | 10 Comments »

RIGA – Morten Hansen tells it how it is:

[T]his simple analysis explains why the country is still poor in an EU sense: It is on average poorly equipped with skills, possibly poorly equipped with physical capital and most likely equipped with a burdensome public sector – and that’s why it deals with scrap metal and not wind turbines.

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Russia’s Game


2009
03.02

Posted in Beyond Latvia, Economy, Wacky Neighbor to the East | Comments Off

The Economist’s Moscow bureau chief Arkady Ostrovsky warns of consequences for Russia as the reversal of fortune takes place. Will Russia be next on the list of countries that saw a public’s outrage in the time of economic collapse?

Whether the current Kremlin is prepared to open fire on its own people is unclear. Soviet hard-liners held their fire when thousands of Russians defeated the coup against Mikhail Gorbachev in 1991. But back then, the kgb and its communist patrons were disoriented and weak. Putin and his regime, on the other hand, are stronger and, most importantly, have more to lose.

What’s even less clear is whether Russia’s police or military would obey the orders to shoot if they were given. The Vladivostok protests and the government’s violent response sparked an online debate in the chat room of Russia’s Interior Ministry. One post read: “Dear colleagues, Russia is at a crucial junction. An economic catastrophe is coming.… People’s patience is coming to an end.… Are we going to be the attack dogs of this regime?”

Another member replied: “I will never shoot at my own people.”

The ministry hurriedly closed down the forum, citing “technical problems.”

….

“There is nothing more misleading than to portray Russia as a liberal-minded society suppressed by a nasty bunch of former kgb agents. The uncomfortable truth is, as Mikhail Khodorkovsky, the jailed boss of the Yukos oil company destroyed by the Kremlin, put it: Putin “is more liberal and more democratic than 70 percent of the population.” And unlike late Soviet leaders who inspired the contempt of the population, Putin even now remains authentically popular.

Putin’s most damaging and possibly longest-lasting legacy is that he has played to Russia’s worst instincts. Rather than develop a sense of pride in Russia’s victory over the Soviet Union in 1991, Putin has fostered feelings of past humiliation and defeat, and subsequently a longing for retribution. Many foreign responses haven’t helped in this regard: American hawks who argue triumphantly that their old Cold War adversary is irrelevant have been of as much assistance to Putin as some of Europe’s appeasers.

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Signs of the Times


2009
01.30

Posted in Economy, Personal, Society | Comments Off

RIGA – In a memory of many middle-aged people here in Latvia, the times of the Prime Minister Ivars Godmanis are associated with the turbulent times of the 1990s. Back then, the tiny country won its independence from the Soviet Union and launched into the establishment of the political system that is in trouble today. The images of empty shelves as the one to the right are fresh on their mind. The photo, incidentally, was taken in 1987, part of the One Day in Latvia project.

Yet, we hope that the 1990s will not make a comeback. We hope that we won’t have to stand in line for basic necessities. At the same time though, it’s hard not to notice that it is beginning to smell like the 90s. The national office of statics today said the retail trade turnover shrunk by 4 percent in December, compared to the month before. Or almost 17 percent year-on-year. The prognosticators are predicting tough times for the once-robust economy, sending chills down my spine.

The numbers are abstract. Signs of economic changes are as real as stories of people who lost their jobs having no money for a simple 40-santimi bus ticket.

A few months ago, a hall that once was a gambling facility in our office building right across the river from the Old Town welcomed a new tenant. Written in the Wild West fashion, the sign told everyone that “Soon, a country music club will open here.” This sign is perhaps a metaphor how badly economy has turned since then. A few weeks later, part of the sign declaring that the club will be a country club has disappeared. Apparently the owners decided to open just a club across from where they’re building the new Castle of Light. The other day, the owners made another modification. Now the sign reads, “Soon will open.”

Signs of times continue to persist. In the last week, strangers asked me three times for some changes to buy a tram ticket. Usually, asking for a smoke, or some change is used as a way to get into a fight, but this time, those people seemed genuinely looking for some help.

Another tenant on our floor was moving out. A group of young men moved the office furniture from the fifth floor to a moving truck parked downstairs by the front door. Along with the office furniture, they also removed everything that they could find in our only bathroom – the toilet paper holder, the paper towels holder, basically anything but the sink and the toilet. Though one thinks if they had more time and less risk, they would have taken those too.

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The 7.5 billion euro crisis of credibility


2009
01.29

Posted in Beyond Latvia, Economy, Revolutions, The Godmanis government | 2 Comments »

RIGA – You can’t help but compare Iceland with Latvia. There are shades of similarities between the two countries – social unrest, a government lacking in credibility. To quote an excellent Edward Hugh article: “The problem is that Latvia, apart from the internal credit boom, and the consequent housing bust and real economy contraction which follows (and which all three Baltic states “enjoyed” actually stands out from its Baltic peers in that it also became something of an offshore financial centre during the boom years. That is to say, there are shades of the Iceland or UK problem in the Latvian situation.”

The International Monetary Fund in its report issued four days before the unrest – their mission was leaving Latvia on the day of the riots – stated that a key to its program success is the wide political support. (PDF file)

Clear medium-term objectives, strong political leadership and mobilization of public support will be key. Consolidations tend to be more successful when perceived by markets and the population at large as durable and sustainable. In many European countries in the 1990s, consolidations were justified by the objective of the Euro adoption, which is also the case for Latvia. On the other hand, most consolidations tend to be led by new governments and under a broad consensus. Latvia’s Parliamentary elections in 2010 represent a risk.

Clearly, the Penguin Revolution and the subsequent ultimatum by the President to the parliament adds risks to the program. Success of this program depends on wide public support which this government doesn’t have.

The IMF required a wide parliamentary support before it agreed to the loan. This is why the Prime Minister Ivars Godmanis urged the parliament to adopt wide-range of painful cuts and raise taxes at the end of last year, asking opposition parties to come on board for the country’s sake. The January 13 protests and following riots turned it all around. And, I think Godmanis realizes that. He blames the opposition parties for staging a rally. And, I suspect, it is why he didn’t want to be seen along with an opposition leader Aigars Štokenbergs in televised public debates three weeks ago.

In traditional European parliamentary democracies by and large a wide parliamentary support equal a wide support of the population. However, in Latvia, it just means an approval of a certain elite clique that stands behind political forces represented in the 100-member incredible Saeima. The parliament isn’t popular, but according to Godmanis it’s the strongest in Europe. His center-right government, however, is the least popular government in Europe, with popularity of 10 percent. It raises risks to the IMF program.

When you have an unpopular government cutting wages, raising taxes, its rating will plummet down. And I suspect we haven’t seen the end of the popular unrest. The rock concert was just a prelude to a wider protest. Already, the farmers threaten to block highways and streets in Riga in protest against government policies next Tuesday, if their demands are not met. Providing information to a lot of villages, the national radio broadcaster doesn’t have enough funding to operate, adding to the frustration. People will be laid off with unemployment reaching up to 12 percent, basically double in the matter of months, according to official estimates. Unofficially, of course, it will be much higher.

While the IMF sees an election as a liability because it ushers in an uncertain future, for the people of Latvia an election under new updated election laws appears to be a way out of this crisis of political credibility amidst economic uncertainty.

The parliament speaker Gundars Daudze this morning offered more evidence that we’re heading for snap elections. He said in a TV interview that he sees no possibility to adopt constitutional changes before March 31, the presidential deadline.

The photo above was taken by me during the summer farmer protests against the EU milk quotas

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A remedy for the hangover


2009
01.13

Posted in Economy, The Godmanis government, Uncategorized | 3 Comments »

RĪGA – The Nordea macroeconomic review (available in PDF)in September put it rightly: “Latvia: the Party is over.” After several years of robust growth, Latvian economy is now in a slump. The economy is expected to shrink by as much as 8 percent this year, resulting in massive unemployment the likes of which we probably haven’t seen since the early 1990s.

Riding the populist wave a head of the local elections this summer, the minister of transport Ainars Šlesers – an apparent candidate for the mayoral seat in Rīga – yesterday proposed a three-year moratorium on allowing banks to go after defaulted borrowers. That means that banks will not be able to use all legal means necessary to get back the money they lend to consumers.

“There has come a time to call to answer the irresponsible behavior which banks have behaved in the recent years,” Šlesers told LNT.

It is an ironic statement coming from a man who appears to be above taking responsibility for his actions. Blaming banks for irresponsible borrowers is as foolish as blaming the sale of alcohol for the rampant alcoholism. The one and only Soviet President Mikhail Gorbachev fought alcoholism exactly the same way Šlesers proposes to fight the severe indebtedness: absolving people from their responsibility for their decisions. When will we learn to make the right choices?

The problem is people who have not been used to credit were exposed to vast possibilities. They took out loans to go on holidays. I heard stories of people taking a cruise to the Mediterranean on credit, buying the latest and greatest in clothes, automobiles, houses on credit. People have been living beyond their means and clearly have to learn the tough lessons of the crisis. It’s something that people teach their kids in the West.

That is not to say that the government should stand idle as voters struggle to make ends meet in an economy where unemployment is projected to reach 11 percent in 2010. Changes in bank regulation certainly are needed and will be coming our way this year. And it seems to me requiring people to take a class on financial management paid for by the bank before they’re granted a loan would educate the public how to manage their finances, and how to live a peaceful life no matter what might come your way. Even if it’s another economic turmoil.

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