Friday, December 19, 2008

Latvian leadership continues to spread contradicting news

Latvian government participates in IMF coordinated negotiation process in securing the loan from the EU Commission. It was the Latvian court jester Slakteris who uttered couple of weeks ago that Latvia Inc needs about five billion euros from the IMF, and if possible would have taken even more... . This Wednesday during the "Kas notiek Latvijā? TV show" the PM specified that required monies would mostly come from the EU Treasury, and that it is the IMF who asked not to disclose the exact loan sum until the negotiation process is over.

Latvian government refused to sell the majority stake in airbaltic.com to SAS last week. Yesterday SAS announced that it would sell remaining 47,2% of the airbaltic stocks to the airbaltic.com management by January 31, 2009. Until now the airbaltic.com is the state company and controls the 52% majority stocks already. These are dire times for SAS, but also not the rosiest times for the Latvian state as the majority stockholder in the company, thus it is something the KNAB and Latvian prosecutors office could actually investigate?

And finally the ministry of finance decided to launch the official Latvian euro website today. The present government plan is to introduce the common currency by the 2012 deadline. Interesting indeed... .

Thursday, December 18, 2008

Godmanis government fall approaching and Argentine scenario replicated?

It should be the hottest time for blogging, but it is the end of the year now. Seasons´s Holidays are approaching and also student papers must be graded. Couple of days ago I went quickly to Helsinki and stopped for a night in Tallinn, and upon return learned that Latvian Wonderland continues its downward spiralling into crisis.

Today the administrative territorial reform after `` sixteen years of painstaking work of Latvian MP´s`` culminated in 56 AYE´s and 36 NAY´s in the hundred member parliament (the reform was started in 1992, the Administrative law was passed in 1998, and the new administrative territorial division being finalized today). Partner of the existing coalition, the Union of Greens and farmers (ZZS) voted en masse against the motion, and the only one who voted AYE was the speaker of the Saeima Gundars Daudze. People´s Party genosse Mareks Seglins in his interview to the Latvian TV ``Valsts pirmas personas`` program just announced that ZZS with their vote opened the opposition Harmony centre party a way into the future governing coalition, however, without specifying whether it means the exit of ZZS out of the coalition.

For the present government it is not easy to survive in present circumstances, and today around thousand activists were around the parliament building in Jekaba St. protesting against the territorial reform and parliament´s decision to quadruple the VAT for certain businesses starting from January 1, 2009. As if the exiting problems would not been enough, there was a public pronouncement that would have easily made its author persona non grata just a month ago. Last Friday the Nobel Prize laureate in economics Mr Paul Krugman gave a guest lecture in Stockholm School of Economics. V. Dombrovskis in his blog gives a link, where Paul Krugman openly compared Latvian present economic crisis with the Argentine one in the 1990´s. Argentine was named star pupil of the IMF. While Latvia performed well and IMF closed its office here in 2004, in reality Latvia was not so good pupil of the EU, particularly if we remember how Latvia failed to deliver all the acquis communautaire requirements until May 1, 2004.

The Argentina meltdown and street riots were widely covered in international media. The dynamics of economic meltdown in both countries is reflected in almost identical macroeconomic data. While the Argentine populace in Buenos Aires was openly rioting for weeks, then Riga and other Latvian towns are still calm. The relative calm is faulty however, because the harsh reality is only slowly setting in for the majority of the Latvian population. Until Season´s Holidays there are not many employers who would disclose their actual plans about the downsizing. While talking with rather few acquaintances from the various businesses I learned that most of the bosses want to reveal the ``real news`` after the New Year´s celebrations... .

The January 5, 2009 wake up in Latvia would be rather harsh and I only wish that the Greek youth calls for pan - European protests would not be followed by similar actions in biggest towns in Latvia, huh, uhh. It is hard to predict exactly how the developments would evolve. However, sporadic pickets in front of the parliament, continued smugness of the PM, and rising unemployment allow me to predict that it will be extremely hard for the government to keep the relative calm in this tiny Baltic republic.

Monday, December 15, 2008

Program for getting Latvia out of the economic malaise

The program for getting the Latvian state out of the crisis was published last weekend. The short document deals only with minor changes in fiscal policy and strengthening of the regulatory oversight, and only half a page or ten points of it is devoted to the policy proposals for reinvigorating the stalled economy. The tax on capital earning is planned for 2010 only, and the quadrupling of VAT from 5 to 21% would detrimentally affect hotel and publishing industries. Pēteris Cedriņš in his blog revealingly argues about the "Latvian yoke" that could even extinguish the Latvian language publishing as an industry.

With present odious leaders there is no chance that such a program could be effectively implemented. In addition to that, if this is the "serious program" that makes Swedish Finance Minister to trust the Latvian government in its present task to secure billions from the Western governments and financial institutions, then I could easily call myself a pope... . In reality government's position paper on securing billions still does not answer two basic questions - how much they plan to borrow, and how earmarked these money transfusions will be? One may ask what alternatives I see here? An answer is simple - snap elections and bipartisan approach that should follow in order to lead the country out from the present economic malaise! Latvian president has the power to initiate sacking of the parliament but he has not made up his mind yet, while support for the Latvian government and parliament has irreversibly sunk under 10% margin.

In order to put the problems of present economic crisis in a nutshell decided to use the same format as I used already in my previous blog entry. This time to go through the chronology of events I used some poignant Gatis Šļūka cartoons from Delfi, and translated them.

Text in Latvian: The US crisis [Kalvītis: We should expect seven fat years!]

Text in Latvian: Budget [Probably I would have to cut a piece again in the middle of Winter]


Text in Latvian: Shriek about budget

Text in Latvian: Latvian state [Back seated Transport Supremo - full speed forward! Goodman - safety cushion was too fragile after all...]



Text in Latvian: Goodman - thus, while we discuss the cooling economy...; Cabinet member - we invited also couple of experts!


Text in Latvian: Latvian economy [Goodman with the Court Jester Slakteris - What now? To cool or heat it up?]

P.S. For those of you who read Estonian here is a piece I wrote for Postimees today.

Friday, December 5, 2008

Latvian PM burning out?

I am back from Stockholm where I was invited to attend the Södertörn University Centre for Baltic and East European Studies (CBEES) very well organized conference. In plane I read encouraging news about Riga Administrative Court staying firm and not dropping demands from political parties who illegaly overspent their election campaigns. The prime minister´s LPP/LC party must repay 528 870,01 lats into state treasury by December 13, 2008 deadline. This is the money LPP/LC overspent during the illegal election campaign in September 2006, and also People´s Party (TP) and Union of Greens and Farmers (ZZS) used the same tactics, thus being required to repay Ls 529 981 and Ls 11 626 accordingly.

Such demand would literally bankrupt LPP/LC party. At the same time and after the IMF insistence the PM was presenting his ideas about leading Latvia out of the economic crisis in the parliament. There he announced that the Latvian state must cut expenses for about another Ls 600mlj. In his official speech he announced that he wants to see real actions of all stakeholders by the December 19, 2008 deadline, because otherwise government might not be able to fulfill its obligations already in March 2009.

It seems that Ivars Godmanis probably takes his tasks too seriously. He does not have an experienced team to help him in his ordeal, if he even had to fall asleep in yesterday´s parliamentary session... .


Photo: AFI

Tuesday, December 2, 2008

Cant be true, a failed state after all? (updated)

The news came this morning from LETA about limits imposed on money withdrawals from the Parex Bank. " The Financial and Capital Market Commission prohibits all companies to withdraw money from the Parex Bank, if it is not determined for fostering business. For private citizens and legal entities there are monthly withdrawal limits set at Ls 35 000 (50 000EUR), if the number of company employees ranges from one to ten, and Ls350 000 if the number of employees ranges from 11 to 250." ("Parex bankai" aizliegts veikt debeta operācijas klientiem juridiskām personām, ja šīs operācijas nav paredzētas saimnieciskās darbības veikšanai. Savukārt minētajām operācijām saimnieciskās darbības veikšanai juridiskām personām ir noteikti ierobežojumi - 35 000 latu (ar darbinieku skaitu līdz desmit) un 350 000 latu (ar darbinieku skaitu no 11 līdz 250) kalendārajā mēnesī.)

Such news did not come from an empty space, because for months now Latvian public is kept vigilant with surprising news from the Latvian wayward governing clique. I do not know whether it is the "nature" of the present governing coalition or the public relations folks in the government house are to be blamed, but official announcements of different government officials contradict each other lately. Such contradictory announcements only fosters rumours spreading. For example, such text (see below) is lately on screens of the Parex Bank telling machines. The government keeps strangely silent, because there has not been a single official announcement concerning Parex nationalization on the Ministry of Finance and the Cabinet of Ministers official webpages. Such contradiction makes rumours spread quickly about an empty shell left over from the once second biggest Latvian bank.


Text in Latvian: We are sorry, but there is no cash in the telling machine now - would you like to perform another operation? YES/NO

Photo: Raitis Puriņš

Diena reports that the government still has not agreed on the new head of the Corruption Prevention Bureau, and the deadline for the new candidate to be presented is pushed ahead for another two weeks. There are several candidates on the list but the PM foolishly does not take the veil of secrecy away from the procedure of choosing the new head of the Latvian prime anti-corruption warrior. Whenever journalists address questions about the new head of KNAB, the PM Ivars Godmanis abruptly retorts that he does not have time.

Actually for about three month in a row now the Latvian head of the cabinet excuses his bad mood and erratic behaviour with the financial turmoil at home and internationally. I already wrote earlier, that working alone could simply burn Mr Godmanis out and he should better get a sensible minister of finance. The latter person has lately accepted the role of court jester, and nobody really believes in his pronouncements (actually it also makes one wonder why is there need for PM if there is no coherence in ALL cabinet ministers pronouncements).

Just last week the governor of the Bank of Latvia and Mr Slakteris announced that government would borrow EUR3 billion at most. Yesterday, as a snow from the clear sky came an announcement that government would need to borrow EUR5 billion after all!!! And this sum is almost a half of the annual Latvian GDP, thus making me to reckon that Latvia wants to borrow more than Iceland. If we trust IMF then Iceland would like to borrow only USD 2,1 billion. Actually, Irish Times reports that in order to avoid bankruptcy Iceland plans to borrow as much as 10billion USD. If this information would turn out to be true, then I do not really want to mention Latvia anymore...because the way the former PM Kalvītis finds excuses gives another proof about present governing clique living in a bubble.

And the bad news from international money markets probably explain the erratic behavior of Ivars Godmanis now. To devote all his time just to Latvia Ltd. financial woes could be detrimental to any body's health after all. Therefore, at least I am happy to hear our PM on the radio SWH airwaves, where the leader of the cabinet has his weekly rock music show. It saves this poor man from his public office frenzy, and from honestly uttering the news of Latvia being led to the verge of bankruptcy. Pssst, the b-word is not my invention (remember our vigilant secret police), because in his latest blog entry it is exact wording of the opposition party member Mr Aigars Štokenbergs. Opposition parties must position themselves somehow after all. Thus, Aigars Štokenbergs, being a former employee of the World Bank, probably knows the level of rot in Latvian public finances, and he is not constrained by the heavy weight of the public office. There is nothing more left now, except to wait for these news to be discredited or approved.

Updated

Diena just reported that the Union of Greens and Farmers (ZZS) preferred yesterday to have a coffee with their own party leaders instead of having the coalition parties meeting with the Prime Minister. The fact that such "naive disagreements"resurface into public domain make me reckon that that the coalition member stirred soup a'la letton is slowly boiling over. Toppling the Maire of Riga is not an easy task, and also ZZS do understand that they could suffer in these party political games, thus what could they propose in order to change the simplistic plan of People's Party (TP)?

It is Tuesday evening already, and all the major Latvian media channels just reported, that the former owners of the Parex Bank, Messrs Viktor Krasovicky & Valery Kargin gave up all their ownership (34%) in the bank to the Republic of Latvia. It is too early to judge how much the Latvian taxpayers will pay for this failed bank, but so far about Ls 400 million of taxpayers monies are already flooded into the bank. The news are not rosy. The fact that the government appointed Mortgage Bank governor Mr Inesis Feiferis refused to become the governor of the new entity, that should have been created after officially merging Parex and Mortgage banks, are not particularly encouraging either. Economic crisis that IMF and other agencies warned about is now definitely here. The Christmas holiday season is open and lets see how merrily the Latvian government would celebrate it.
Text in Latvian: "Aye, old chap, its crisis."

Cartoon: Gatis Šļūka

Sunday, November 30, 2008

November data in

I am back from Glasgow where the Department of Central and East European Studies organized a nice and well attended conference. Actually it was a relaxing feeling to be outside of the present political realm and instead focus on the future while looking back on the Latvia´s last ninety years. On the way back from Copenhagen learned in the Saturday papers that the Harmony Centre Party (SC) held its congress in Riga, where they presented the shadow cabinet in case government should fall. Also, it seems that the president pushing the Saeima has started in earnest, if the election campaign organizer Gundars Bērziņš from the People's Party (TP) took a word, again... . His style was `Latvian macho style` and ludicrous in the same time and even TP ministers tried to avoid to be associated with him.

It is Monday morning now and prior heading to university skimmed through the morning papers. Diena reported monthly data about the popularity of political parties. The question presented in the pollster is: "if the elections would take place tomorrow, which party you would vote for"?






From the existing governing coalition gang all but the Union of Greens & Farmers (ZZS) would stay out of the parliament, because they would not be able to cross the 5% entry threshold. Out of twenty or so Latvian parties only SC and ZZS would get in the parliament now, and the sheer size of alienated and undecided voters signals that there is a place for new kids on the block, if formed by some billionaire are maverick. Relative unpopularity of the existing political parties shows the trend that started in March 2007. It is a shame for the existing government and it is comic that they blame global economic slowdown and problems of their public relations campaigns, and do not understand internal causes for such an utter lack of trust in exiting political establishment. Interesting how long would the relative status quo hold?

Wednesday, November 26, 2008

President pushing Saeima

After changeover of the presidential chancellery acts of presidential team have become "presidential". Even though the Latvian president is endowed with rather few powers (Art. 35-54), yet the right, as it is outlined in the Art.48, is powerful enough to make his presence felt in the Latvian balance of power games.

After the Latvian referendum summer the enthusiasm of the nascent civil society groups declined, but the dissatisfaction with the governing elite has not disappeared. Constitutional amendments after the August 2 referendum stopped in half way, and I already voiced my disbelief about chances to pass them prior next parliamentary elections in the October 2010. The spinelessness of the present Latvian majority MP's is embedded, but the presidential team gradually shows that they are able to act independently, and it is surprisingly good news indeed!

The November 18 speech was not only customarily patriotic, but in his speech Valdis Zatlers unexpectedly clearly pinpointed why Latvian public lacks trust in its representatives: "I wish once again to speak about the responsibility of politicians, too – the responsibility to create political dialogue, promote democracy, and ensure stability in our country. The languorous reaction which members of Parliament have demonstrated in response to this challenge since last summer’s referendum indicates political haughtiness toward the stated will of the people."

The president has held consultations with all the political parties in the Saeima. Yesterday's Kas notiek Latvijā? TV show was devoted to the issue of the constitutional amendments. Positions during the show were clearly outlined. The presidential representative Mrs Kukule pinpointed that the president follows recommendations of the report produced by experts of constitutional law. While the opposition parties agree on giving the right to qualified majority of electorate to initiate the dissolution of the Saeima, then those are ALL coalition parties who continue to live on as if nothing has ever happened. The smug attitude in yesterday's show was balancing on the border of stupidity. The biggest bone of contention actually is the number of electors that should have the right to dissolve the parliament. Opposition parties are ready to compromise and agree on rising the margin of half of electors who participated in last parliamentary elections to the 2/3 of the electors of last elections, while the coalition parties do not budge an inch - they stick to the idea that only half of the total number of electors should have a right to dissolve the Saeima (actually a bigger number of electors that elected the whole of the parliament, and thus making the dissolution virtually imposible). Initially opposition parties followed recommendations from the experts of constitutional law, that stipulates that after tedious procedure half of electors of the previous elections should have the right to dissolve the parliament in case of constitutional crisis (the very situation Latvian lives in now!).

The subcommittee that discussed constitutional amendments was dissolved this week and after insistence of the presidential team the task was taken over by the judicial committee of the Saeima. The head of the committee Mrs Vineta Muižniece (TP) yesterday was asked, whether the majority coalition parties would be able to follow recommendations of constitutional law experts and reach the compromise by the January deadline, as it is being set by the president now? As a schoolchild without any ideas of her own Mrs Muižniece retorted, that now the judicial committee would work really hard (how did they legislate so far then?) and would reach the compromise with the opposition.

Interesting, interesting indeed! Is it the insistence of the presidential team to solve this conundrum, that according to Mrs Kukule would imply using all his powers, that made Mrs Muižniece to agree on sudden change of mind? Possibly, because the latest pollsters show, that, if the president would use his rights (Art. 48 - "The President of State shall have the right to propose the dissolution of the Saeima. This shall be followed by a referendum. If in the referendum more than one-half of the votes are cast in favour of dissolution, the Saeima shall be considered as dissolved and new elections shall be proclaimed. These elections shall take place within two months after the dissolution of the Saeima"), then majority of Latvian electorate would actually support such motion.

Friday, November 21, 2008

Economic crisis in Latvia - official pronouncements

Since the Latvian government now stands in a queue for the financial help from the IMF I simply could not resist to look out through the international warnings and responses of Latvian officials during last three years. This time I did not include warnings and analysis of my own, but searched through the world wide web to quickly see the most colourful responses of the Latvian officialdom.

The whole C- and R -word ``discourse`` started with the EU membership bonanza falling unexpectedly into the lap of the present coalition government three years ago. Instead of listening to numerous warning signs from several scholars, The Economist, IMF, credit rating agencies, and banks the incumbent government (the present government has 90% of the same members as in the government of Aigars Kalvitis) kept going with their irresponsible bacchanalia.

1. Tomasz Janowski, Is Latvia's economy following in Iceland's overheated footsteps?, Reuters, February 27, 2007.

2. Statement by IMF Mission to Latvia on 2007 Article IV Consultation Discussions Press Release No. 07/87, May 4, 2007

3. Alf Vanags and Morten Hansen, BICEPS report, Occasional paper No2, Inflation in Latvia: causes, prospects and consequences, Summmer 2007

4. Edward Hugh, The Latvian Economy, June 24, 2007

5. EUBusiness, EU envoy warns Latvia its economy is at risk, 12 July 2007

6. Fitch Downgrades Latvia to 'BBB+', Outlook Stable ## Aug #### #:## AM (EDT) Fitch Ratings-London-## August ####: Fitch Ratings has downgraded the Republic of Latvia's foreign currency Issuer Default rating (IDR) to 'BBB+' from 'A-' on August 17, 2007

7. Moody's downgrades Latvian, Estonian debt, September 5, 2007

8. Latvia & devaluation, Eastern Europe Baltic blues, Oct 18th 2007, The Economist

9. Budapest Business Journal, EU warns Latvia over economic hard landing, February 13th, 2008

Lets see how knowledgeable the Latvian governing clique was about the coming of the economic crisis:

1. December 31, 2005, Latvian Public TV. PM Aigars Kalvītis: ``dear compatriots! if we are not going to make gross mistakes, then we face seven fat years ahead of us. Seven fat years, if you remember the story about the Jacob``. ("Mīļie tautieši, ja netiks sadarītas kādas muļķības, tad mums priekšā ir septiņi bagāti gadi. Treknie gadi, ja atceras stāstu par Jāzepu.")

2007

2. May 11, 2007, Diena. The member of the Riga City Council and chief economist of the People´s Party (TP) Edmunds Krastiņš:`` There is no crisis and not going to be one! What economic crisis? We do not have to discuss about it - is the crisis inevitable, but rather about - whether such economic crisis is possible at all during upcoming years !``("Nekādas krīzes nav un nebūs! Kāda ekonomiskā krīze? Mums nav jādiskutē par to - vai krīze ir neizbēgama, bet gan par to - vai tāda ekonomiskā krīze vispār ir iespējama tuvākajos gados!")

3. Diena, October 10, 2007, Minster of Finance Oskars Spurdzins (TP) "with the 7,5% GDP growth and 6,3% annual inflation prediction for the next fiscal year the Ministry of Finance specialists worked on the budget with other experts, and if such predictions would be hold out then we could see a healthy economic growth in 2008."

4. Latvijas Avīze, October 25, 2007, PM Aigars Kalvītis: `` The growth is still quite high, but next year we expect a slight decline of the economic growth. `` ("Izaugsme joprojām ir augsta, taču nākamajā gadā varētu būt neliels kritums.")

5. ("Nedēļa" November 26, 2007) `` While responding to the question in the header, whether there is an economic crisis in Latvia, I can resolutely answer - there is no crisis. It is harder to respond to another question - whether we could see the crisis in the nearest future? The governor of the Bank of Latvia argues that we would not, while the head of the Economists Union-2010 Ojars Kehris agrees with him. ``(Uz virsrakstā izvirzīto jautājumu – ir vai nav Latvijā ekonomiskā krīze, var atbildēt viennozīmīgi: nekādas krīzes nav. Grūtāk ir atbildēt uz citu jautājumu – vai mūs šāda krīze nesagaida drīzā nākotnē? Latvijas Bankas prezidents apgalvo, ka nē; Ekonomistu apvienības – 2010 vadītājs Ojārs Kehris viņam piebalso. )


2008


6. TV LNT "900 sekundes", January 2, 2008, PM Ivars Godmanis: The society should not live with crisis expectations`` (Sabiedrībai nevajadzētu dzīvot krīzes gaidās.)


7. February 14, 2008, Governor of the Bank of Latvia Ilmars Rimšēvičs:`` crisis is in our heads. PM Godmanis: lets not get crazy! Rimsevics: krīze ir mūsu galvās. Godmanis: nepsihojam! TV Kas notiek Latvijā?14. februāris 2008 ``The Governor of the Bank of Latvia explains that crisis is in our heads and expresses his bewilderment about government watching with naive looks on their faces while simply reiterating the number of tasks reported to them after the European Commission report. The PM Ivars Godmanis reiterates that he was absolutely sure about such an high inflation in January, thus asked folks not to get mad.`` (``Latvijas Bankas prezidents Ilmārs Rimšēvičs skaidro, ka krīze ir mūsu galvās, izsaka izbrīnu, kāpēc pēc Eiropas Komisijas ziņojuma visi skatās naivām acīm, un uzskaita pasākumus, kas jāveic valdībai. Ministru prezidents Ivars Godmanis apgalvo, ka viņam bijis pilnīgi skaidrs, ka janvārī būs tik augsta inflācija, un aicina iedzīvotājus nepsihot.``)


8. Latvijas Avīze, March 5, 2008. Finanšu un kapitāla tirgus komisijas (FKTK) vadītājs Uldis Cērps: `` All in all we should not be too excitedly worried about the economic situation here``("Kopumā tuvākajā laikā par ekonomisko situāciju nevajadzētu pārspīlēti uztraukties.")

9. LETA, 2008.gada 15.aprīlis. Prezident of the Latvian Commercial bank Association Teodors Tverijons: ``We are not expecting record profits of our commercial banks, thus instead we are going to return to the normal rates of income``("Šogad nav gaidāms kārtējais rekords komercbanku peļņu rādītājos, tā vietā atgriezīsimies pie normāliem peļņas tempiem.")

10. Krumane: Talk about economic crisis in Latvia is exaggerated, LETA, April 29, 2008, "Talk about an economic crisis in Latvia at the moment is exaggerated, according to newly-appointed Financial and Capital Market Commission Chief (FKTK) Irena Krumane, who spoke in an interview on the LNT TV morning newscast".

11. LETA-REUTERS, April 23, 2008. IMF : ``we predict soft landing scenario for the Baltic States`` ( "Baltijas valstīm mēs prognozējam vieglas piezemēšanās scenāriju.")

12. Neatkarīgā Rīta Avīze, April 24, 2008. Minister of Finance Atis Slakteris and the Saeima Budget and Finance Committe head Kārlis Leiškalns: because of the declining tax revenues the state would not switch from the planned budget surplus to the customary budget deficit (valsts nodokļu ieņēmumu samazināšanās dēļ valsts nepāries no ieplānotā pārpalikuma budžeta uz savu ierasto deficīta budžetu.)

13. Diena, April 29, 2008, PM Ivars Godmanis after meeting the IMF mission representatives: ``we should not paint the future scenarios of economic development in too dark colors`` ("Nevajag dramatizēt situāciju par pesimistiskiem tautsaimniecības attīstības scenārijiem".)

14. LETA, June 4, 2008 The Governor of the Bank f Latvia, Mr Ilmārs Rimšēvics in the Baltic Sea region business conference: The Baltic Sea region stakeholders must understand the situation in the Baltic Sea region and should think about the present crisis more optimistically. "It must be underlined that the financial system in the Baltic Sea region is very stable". The global liquidity crisis would be over soon, and its effects on the Baltic Sea region would be limited. (Latvijas Bankas prezidents Ilmārs Rimševičs Rīgā notiekošās Baltijas jūras reģiona valstu biznesa konferencē: Baltijas jūras reģiona spēlētājiem ir jāizprot situācija Baltijas jūras reģionā un jāuztver tā daudz optimistiskāk. "Jāuzsver, ka Baltijas jūras reģiona finanšu sistēma ir ļoti veselīga." Globālā likviditātes krīze ir beigusies, un tās ietekme Baltijas jūras reģionā ir minimāla.)

15. Dienas Bizness, 2008.gada 8. oktobris. Latvijas Komercbanku asociācijas prezidents Teodors Tverijons: ``the situation in Latvian banks is more than stable(...) I can firmly assure you, that there is not a single bank that would face problems`` ("Banku stāvoklis ir vairāk nekā stabils (..) varu droši apgalvot, ka nevienai bankai nepatikšanas nedraud.")

16. Aigars Kalvītis in the People´s Party Congress in October 18, 2008: ``So what, fat years were reality indeed. A bit shorter than we wanted, but perhaps even more informative lesson for us``("Nu ko, treknie gadi bija realitāte, īsāka, nekā gribētos, bet varbūt tieši tāpēc daudz pamācošāka.")

17. Diena, November 11, 2008, PM Ivars Godmanis: `` we should not exaggerate (...)annual GDP could decline this year by 1,3%``("Nevajag pārspīlēt (..) IK šogad varētu samazināties par 1,3%.")

So I finish with the news about the Latvian Central Bank making biggest weekly lats purchase since 2006 on November 19, 2008, reported by BBN. And as if these news are not worrisome enough the Latvian Security Police detained the Ventspils University lecturer Dmitry Smirnov reports Delfi. Mr Smirnov dared to argue in his article for the regional paper Ventas Balss about the sorry state of Latvian economy and possible devaluation of the national currency looming. You can actually have a quick coverage on this issue here . Common, wake up quasi-Leninst Latvia, there is no way out of this crisis if lecturers are detained for simply arguing about the present ills of economy, it is simply too ludicrous...


Text on the boat: The State


Cartoon: Gatis Šļūka

Wednesday, November 19, 2008

Latvian downward spiral continues

Its Thursday morning and Diena reports, that government plans to announce queueing for the IMF or EU rescue package in today's cabinet session. Huh, uhhh and finally it is open, and there is no need for Latvian diplomats to look stupid while repeating mantra of their superiors and saying that everything is alright in the Latvian Wonderland.

Harsh reality sets gradually in and in the meantime the Latvian president seems to be decided about pushing the Saeima into accepting the constitutional amendments prior Christmas brake. In his festive speech he specifically reminded MP's about their responsibility to bring about amendments that more than 600 000 citizens were in favour, and has started to hold consultations with major parliamentary stakeholders. Constitutional amendments I am talking about, are the same there was much discussed referendum on August 2, 2008.

Governing parties are very reluctant in their official announcements, and have openly said that they do not want to change the "sacred constitution" prior the October 2010 parliamentary elections. Reluctance is embedded and heads of ZZS, TP, LPP/LC, TB/LNNK party fractions in the parliament simply try to avoid this issue. Also the speaker of the Latvian parliament Mr Daudze avoided this issue. In his November 18 speech he emphasized that citizens have the major responsibility in these dire times thus they must pay properly taxes, whilst forgetting to mention that minigarchic families are major culprits for the lack of rule of law and entrenched role of grey economy.

Mr Daudze is well known for repeating views of his pocket party and the fraction, although in his speech he should abstract from the narrow view of his party and should try to consolidate views of the whole of the Saeima. It is too much to expect it from him however again... .

Tuesday, November 18, 2008

The 90th anniversary and future political games

Celebrations of the Latvian 90th anniversary are ongoing. Military parades outside Riga, festive speeches and historic reflections would culminate today. The early morning parade of Latvian student societies, fraternities, and sororities traditionally went to commemorate Latvian heroes to the Cemetery of Brothers in Arms. This parade was followed with the symbolic laying of flowers at the podium of the Freedom Monument in Riga. The special Saeima session convened in the National theatre, in the very spot the Independence was proclaimed ninety years ago. The picture above is the only picture made during that historic event and the author of this photo is Vilis Rīdzenieks. The original photo is black and white and to commemorate this historic material evidence also a short movie was made, and it will be shown on Latvian TV today.

The anniversary will be continued with the military parade, presidential reception and fireworks. Traditional and wholesome celebration one may assume, but to many Latvian citizens (including me) there is a feeling, that not everything has been done to properly celebrate the 90th anniversary of the republic. There is the first victim of interplay between the lack of proper regulation and international financial crisis in Latvia, when the government was forced to take over the second biggest bank in Latvia. Several experts speculate that right after the independence day celebrations several smaller Latvian banks could follow the suit of Parex Bank, and then the question is whether the Latvian government will guarantee also the smaller banks? There was no reserve fund created during the years of spectacular economic growth in Latvia, thus the government would be forced to slim its administration.

The 2009 budget was passed in the second reading with the 1,5% GDP deficit, while the PM and the Minister of Finance stipulated, that they would start correcting the budget in order to balance it in the early 2009 after the 2008 data on economic growth in Q4 would be known. While budget was hastily amended (just 1,5 weeks prior passing it in the parliament the fiscal deficit of the 2009 budget was planned at 1,87% ), rumours about possible party political realignments intensified, thus enabling also cartoonists to sarcastically reflect on the anniversary.


Text in Latvian: GASOLINE - Only today a special price for the Latvia's 90th Anniversary!

Cartoon: Gatis Šļūka

There is ongoing debate about the dire straits of the ruling Peoples party (TP), that does not have neither the post of the PM nor the Maire's office in the City of Riga. Latvian ruling parties traditionally have built their winning strategies prior municipal and parliamentary elections from the position being in power. To achieve their goal TP needs to achieve favourable coalition government prior the Latvian municipal elections in June 2005. The TP new leader and the Minister of Interior Mr Mareks Segliņš announced that he would not mind taking the opposition Reconciliation Party (SC) into the new governing coalition.

we take Riga...

I guess that this is simply testing the grounds for rather simple plan to start the remodelling of the existing coalition governments from the Riga municipality. In Latvian micro state almost half of the Latvian population resides in the Riga metropolitan area. Thus, similarly to other small states (Estonia or Iceland) whenever there are changes on the national level they also trigger changes on the level of the biggest municipality.

Preparations for the change in the Riga Major's office has started, because also transport supremo Šlesers is interested in this post. He is so much interested in this post that allowed himself a frivolity to retort to journalist question, whether chances of the present MEP Ģirts Valdis Kristovskis (Citizens Union) to become the new maire of Riga are good, as simply negligent...(«Nav vērts izteikties par tiem, kuriem nav nekādas izredzes vadīt Rīgu.»)

My hunch is that the TP is interested to get the Maire's office prior elections in the June 2009. It has been rumoured that the Riga Vice Maire Andris Ārgalis (typical Soviet hozaistvennik) is keen to assume that post. TP has nine seats in the Riga municipality now, while SC has seven, the First and Latvian Way Party union (LPP) eight, and Social Democrats (LSDSP) have five seats. In order to trigger the fall of the present Maire of Riga Mr Jānis Birks (Fatherland Party-TB/LNNK) TP leaders must appease Social democrats and RC party with positions that are lucratively enough. If they achieve that then they can with their present partners from the LPP form the thirty one seat majority in the sixty member Riga City Council. If they would feel that 31 seat majority is too scanty, then they can always count on the four mavericks from the Motherland Party (Dzimtene) and Socialists Union.

and Latvia after it...

If such plan would work out TP would achieve thus needed bridgehead position and administrative resources prior the 2009 municipal elections. It could possibly trigger the fall of the present governing coalition. It has been rumoured that president Zatlers would nominate the incumbent PM again, and the TP would actually be happy with such a turn of events. Overcoming the hardest economic crisis is entrusted to the crisis manager Ivars Godmanis, and thus it is assumed that all the blame in public relations sphere would be transferred to LPP. Also it could allow to take SC into government, because there is not enough lucrative positions on the municipal level. In this case the parties that would fall into disgrace would be TB/LNNK and the Union of Greens and Farmers (ZZS). The number of TP (21), SC(18), and LPP(10) seats is enough now to have a new minority coalition in the 100 member Saeima, and if some of the PCTVL MP's would be co opted, then they could even have a slight majority.

It could officially report the death knell for the TB/LNNK parliamentary representation. TP would get rid of the ZZS, that they are unhappy with due to disagreements on the territorial administrative reform ,and due to the Maire of Ventspils ambivalent role in today's distribution of government perks. Also it could allow TP to swing into the race for the 2010 parliamentary elections. Allowing leftist SC in the government TP could traditionally blame the LPP premier and leftist SC for all the ills somewhere after the 2010 Midsummer. Thus, it would allow TP together with the opposition right wing parties (JL, PS, SCP) to propose somewhere around this time to form a "genuine" right wing coalition TP-21, JL-14, ZZS-17 and with their PM candidate (Kristiāna Lībane - Šķēle) to prepare for the 10th Saeima elections.

This is just my speculation which could be achieved if we assume that the major actors of the political field are static. First, it will be outcome of the European Parliament and the municipal elections that would determine the relative balance of political forces prior the October 2010. Second, the, international economy is an intervening variable that could trigger activation of the civil society and fostered role of the opposition parties. The present situation looks rather uncertain with the global recession hitting the Latvian economy hard. The potential for the clean-up of the Latvian political system looks promising while looking from the perspective of the formative events at the end of the 2008 however. The choice is simple - to reform the post-Soviet education, political and economic structures or to become a murky dependency relying on the Russian oil and mineral resources transit commissions. I still hope in capacity of the Latvian people to change their thinking patterns and to proudly celebrate the Latvian 100th anniversary just ten years from now.

P.S. Those of you reading in Latvian can read a piece I wrote in Diena today.

Tuesday, November 11, 2008

So much abut culture...

Six years ago the Estonian judiciary passed a verdict and the former head of the non - profit Estonian Culture Capital (ECC) was arrested. While being the head of the ECC its director Avo Viiol squandered around EEK 8mlj. In the process of untangling the whole affair it was discovered that Mr Viiol was gambling addict and simply used the money to satisfy his own vices. In the aftermath of the scam the Estonian Audit Office made a thorough investigation of the whole affair and discovered that politicization and lack of proper oversight of the non-profit organization made it possible for the lack of transparency in its financial flows. The National Audit Office of Estonia concluded after the ECC affair that the lack of regulation of non-profit organizations was the major cause for donations being squandered by self imposed head of the office. Later it was already former Estonian Ombudsman Mr Allar Jõks who tried to argue that also the politicization of the State Company Boards adds to the continuation of the non-transparent culture of financial flows in the Estonian non-profit and business sectors. While the new Estonian Ombudsman has not come to the issue of the state company boards full of politicians as forcefully as the former ombudsman, at least the ECC runs its business properly now.

In Latvia the Prime Minister has stepped into the shoes of Allar Jõks and he wants to cut down the size of political representatives in the State Company Boards. Last month the news broke out about the Latvian homologue of the Estonian ECC repeating the same ´´mistakes of financial scam´´, and apparently Latvian problems have the same roots. The non-profit Latvian Culture Fund (LKF) acting head Mr Pēteris Bankovskis mismanages the fund for quite some time now. He took over the fund in 1997, and in 2008 the LKF under his supervision lost its status of non-profit organization for the second time already (actually the LKF web page still advertises that they are entitled to accept donations!). Journalists from the the TV3 "Nekā Personīga" weekly program found that donations to the fund have disappeared. It means that not only several cultural programmes have stalled, but also monies to the Latvian poet Imants Ziedonis have disappeared. In the meantime the LKF not only leases a brand new Audi, and rents an office in down-town Riga, but the acting head of the LKF Pēteris Bankovskis has appropriated the real-estate that formerly belonged to the LKF. Diena reports, that Mr Bankovskis acquired the rights over the 3412 sq.m. real estate in Jūrmala for Ls20 000, and now the real estate company sells the Mr Bankovskis property for Ls1,63 mlj!


Photo: Kristaps Putniņš

Pēteris Bankovskis: "I am not a financial genius, but this property is mine..."

The Head of Latvian Audit Office Mrs Ingūna Sudraba discovered gross violations in the LKF financial reports already in 2005. The Latvian State Audit Office did not have a legal right to ask the Prosecutor´s Office to start an official investigation due to the fact that the LKF is a non-profit organization, thought open violations of bookkeeping procedures and other financial regulations were discovered. One may simply leave financial problems of the LKF aside and just look into the LKF website to realize that this institution does not operate properly, because the latest update of their web page dates the May 23, 2007!

If the State Prosecutor's office would initiate investigation vis-a-vis Pēteris Bankovskis unilaterally, then it would be beneficial to tighten the state regulation also in the Latvian non-profit sector. Until the affair is not solved one may only witness that the non-profit cultural organizations may become rather uncultured without proper oversight. Here Latvia is stepping into Estonian shoes again, and just the circumstances are different. While the former Estonian head of the ECC was gambling addict the incumbent head of the LKF is a self - styled financier. His financial schemes cost Latvian culture dearly already, and one can only hope that the Latvian Prosecutor's office and the Corruption Prevention Bureau (KNAB) would act quickly and within confines of law right after the Latvian Independence day.

Sunday, November 9, 2008

Bank failure in Latvia - start of the downward spiral (updated)

Photo: Delfi

There were three news coming from the Latvian cabinet on the Brivibas St. that would have sounded like a bomb in other times. In the situation when international financial markets are in disarray, TRUST is lost in the credit institutions, the news from Latvia do not surprise anymore. Decision makers around the world are busy with bigger banks and more influential economies. Also the Latvian public is used to so many scams and scandals involving different grades of civil servants and government officials, thus the latest news do not surprise anyone anymore.

First, news came about the government nationalizing the second largest bank in Latvia, the Parex Bank. Apparently several savers (officially there are around 500 000 of them) have withdrawn their savings amounting hundreds of millions of dollars. Earlier the Bank of Latvia and Chief Financial Regulator announced that Parex would have had problems of rolling over the syndicated loan in early 2009 due to strained foreign currency markets. Also the Governor of the Bank of Latvia announced that no other bank in Latvia faces such problems as Parex. Thus, the Latvian state took over the majority assets (51%) from the owners of the failed Parex paying for it symbolic Ls2, and merging it with the Latvian Mortgage Bank. In addition Db reports that the Latvian Mortgage bank had invested Ls 1,899 mlj into Lehman Brothers stocks, but that money is evaporated now.

The text in Latvian: 2006 - we have the cheapest credits in town! Here, take our money! 2008 - the highest interest rates! You have our money, thus bring it back!

Cartoon: Gatis Šļūka

Second, Latvian Minister of Economics announced that Latvian government would have to ask help from the International Monetary Fund (IMF). Kaspars Gerhards (TB/LNNK) specified that its only the question of time when government would have to act. Earlier the Head of Saeima Budget Committee Kārlis Leiškalns (TP) announced that government must balance next year fiscal budget, because otherwise the government would have to beg from IMF, and that is the least likely prospect of the present governing coalition.


Finally, the government "miraculously", just in a span of a week, found additional 320 mlj. euros to spend less in next year's budget. It means that prior the budget's second reading in the parliament government proposes now to cut the fiscal deficit from 1,87% to 1,5%.

It seems that the persistent warnings of Mr Rimšēvics have paid off, and the cabinet members have understood that problems of international financial markets would simply be amplified in Latvia due to its overblown administrative apparatus and unreformed fiscal system. The PM has started to cut the red tape already although the results are rather timid so far. Nobody has started reforming the fiscal system, and I believe that the present coalition government is incapable to perform such task, thus new government must come instead.

Updated

"Dienas Bizness (Db)" just reported that transport supremo was apparently using insider information and withdrew all his savings from the failed Parex Bank. As I wrote earlier Parex Bank was nationalized this Saturday night through merging it with the state owned Latvian Mortgage Bank. According to Db Transport supremo denies all the allegations, however, it is long known that PM is his party mate, and that the government discussed behind closed doors possible state guaranties to fledgling banks. Interesting, interesting, and if this information would not trigger the fall of the fragile coalition then what would?

The PM must work like a firefighter and deal with such heroic responsibilities as to putting off the flames to the scandal of yesterday. The task is truly challenging and neither Ivars Godmanis has learned to delegate his powers, nor he has trusted government to help him in his ordeal. His Minister of Finance resides in dreamworld, and in those times of dire straits it is too much of a waste of such an asset as the proper advice from the ministry of finance... .

The Latvian Minister of Finance Slakteris and the Prime Minister Godmanis at the press conference...


Photo: Aivars Liepiņš

Friday, November 7, 2008

A sad state anniversary

The 90th Anniversary of the Republic of Latvia is approaching but there is very little to smile about. Prospects of following falsely patriotic speeches, fireworks, presidential reception and complacent politician´s wardrobe show off seem rather out of space now. There are too many serious problems the governing clique has committed, and they even do not feel responsible for them.

Just look on the news of the last two days - Latvian economy contracted (3Q) by -4,7%, Corruption Prevention Bureau (KNAB) finally accused the odious deputy Head of the Internal Revenue Service (VID) Mr Vladimirs Vaskevics in graft and Moody´s cut the Latvian credit rating. Very few people believe in credibility of credit rating agencies these days, thus why should I worry about the Deputy Head of VID being accused by KNAB and Latvian economy contracting?

Because not only complacent politicians but also ignorant Latvian citizens live their lives without really thinking that there are domestic causes for present ills of Latvian economy. When there were economists, political scientists and other experts in their respective field ringing the bells nobody listened. For example, it was a month ago when Morten Hansen wrote a piece clearly outlining why isn´t there a discussion about the R- word. When Morten dared to speak about the too rosy forecasts of Latvian governors back in April it created a small storm. About two month´s ago it was the Prime Minister who predicted that Latvian GDP would grow 2% this year, and he openly questioned the scenario of the Latvian Bank as too pessimistic.

Today, when the negative forecast of the GDP Q3 came in from the Central Statistics Bureau, Latvian media is neither using the R- word, nor trying to ask who was at the helm of the state to allow basically the free fall of economy. Thus, the discourse has miraculously changed, and a word crisis (krīze) is used in a kind of purgatory sense. Incompetent Minister of Finance uttered yesterday, "that these events (financial crisis) could be characterized as rapid transition from the economic model based on a consumer debt fostered real estate bubble, to one founded on competitive and sustainable economics (Notiekošo var raksturot kā strauju pāreju no ekonomikas modeļa, kas balstījās uz parādu veidojoša patēriņa un nekustamā īpašumu tirgus bumu, uz ilgtspējīgu un konkurētspējīgu tautsaimniecību.)" His hare brain would not even be able to produce such a statement, plus he has probably little or no information about the state of the Latvian elementary and higher education system. The VERY SYSTEM that should incubate "sustainable and competitive economic branches" is not only is the least supported in the Baltic States, but in the whole of the EU.

There is an old proverb saying: "that you shouldn´t show readiness of your fists after the fight", and everyone knows who gave the free reign to market participants in Latvia. Just, the fact is that the market was not really free, but serving special interest groups, and while the nascent middle class suffered some tomcats became really fat in this tiny but beautiful country.

Tomorrow the Latvian government must convene in special session and decide whether they will give state guarantees to the list of Latvian companies. Steel smelter Liepajas Metalurgs and several banks - Parex bank, Hipoteku un Zemes banka - are on the list. State guarantees sound like violation of Competition laws of the EU, but if one looks into Rome treaty Art. 92 Subsection 3a and c, it specifies under what conditions government can aid their industries. Considering the extent of the crisis state guarantees sound like a reasonable act, just it is covered in too much of secrecy. Thus, if Ivars Godmanis would allow to pull the veil of secrecy from today's government meeting it would be beneficial for avoiding too many unfounded rumours.

There will be celebrations this year, and Latvian citizens must be proud of their language, history and the state! But they would not be sweet because the celebrations were tarnished by dilettantes in the parliament, and incapacitated ministers luckily not yet running like headless chicken. The 90th birthday looks like an old age, but most of this precious time for majority Latvian citizens was spent under the yoke of the Soviet Union. Real age of the Latvian democracy is just 33 years (1918-1934, 1991-2008), and if one notices problems that exist today, then they are mostly due to the relatively young age of the Latvian democracy. It seems that after the 90th Anniversary there would be a special time of reckoning for some political mavericks. But we still have to live until November 18, because those are not only domestic events that influence countries developments, but increasingly so the external events, and here even domestic Godfathers are powerless. Anniversary is coming, and lets wait and see political reconfigurations following it.

P.S. Those of you reading in Latvian may find the article we wrote with Dr. Axel Reetz in "Akadēmiskā Dzīve" here.

Wednesday, November 5, 2008

A tiny touch of Latvia in Barack Obama historic win

The history was made yesterday in the United States of America. There are millions of news outlets repeating today about the significance of the Barack Obama truly historic win. This morning here in Europe was warm, because good news were coming from the CNN newsroom - Barack Obama is going to be the 44th president of the USA. Stayed up late last night for seeing history being made, and also had a glimpse on the technology marvel - the hologram beaming Jessica Yellin in from Chicago into the CNN bureau, uhh, it was spectacular:)

As I heard from Piret Kriivan in Tallinn Estonian media was thus up-beat about the US elections, that it felt as if Estonians were following elections of their own. Neighboring Latvia started focusing on the US elections about a week before elections. Newspapers started publishing articles about the front runners of Donkey & Elephant parties, and both commercial and public TV stations sent their correspondents to the US. Ms Stikāne from TV3 was simply disastrous (no interviews just plain talk on Time Square in Big Apple and Republican thrown parties on Wednesday news for example), while Dīvs Reiznieks from the Latvian TV did a real quality reporting.

He went also to Chicago and interviewed Michael Strautmanis, who is Barack Obama's chief counsel. Juris Strautmanis family arrived to Illinois in the 1950's as Latvian emigrees. In the 1970's Juris married with Sandra who had her son Michael from her first marriage. Even though Juris later divorced from Michael' s mother and later retired to sunny Puerto Rico, Michael Strautmanis took his stepfather's Juris last name. It was about a year ago when Latvian journalists interviewed Michael Strautmanis for the first time. Interview then was very amicable and clearly showed that it is possible to strive for highest achievements with a hard labour in America.

Michael Strautmanis hard work has paid off, and it is rather probable that Michael Strautmanis would become a part of the new White House staff. Probably there will be some boasting "nationalists" saying that Latvian culture or Latvia was also playing a part in the truly historic election victory. Actually, we can see something similar happening in Kenya already, although Kenyans at least can boast about the ancestral land of Barack Obama's father. In reality, however, the Latvian culture had just as tiny touch to this historic event as the cheering of Obama citizens, that is actually a town in Japan.

Anyway, the historic win of Barack Obama is past already and now the transitional period between presidencies will last until the early January. The new president faces enormous tasks in order to bring the CHANGE into the traditional politics of Washington D.C. I can only wish that Michael Strautmanis would serve his country well, and thus help the United States to reacquire its lost soft power status among other democracies around the world. While I have little doubts about devotion of Barack Obama and his newly formed staff to transform America, I am doubtful about the devotion of Latvian political elite in its efforts to manage country sinking deeper in crisis and that is plagued by several vices. Why is it so is another story, and thus next blog entries would follow.

Tuesday, November 4, 2008

From Riga to the moon?

Today Latvian megalomaniac transport supremo in the TV morning program announced that the Latvian flag carrier air Baltic would start direct flights to New York and would fly to Big Apple four times a week! As a typical Latvian politician he did not specify when the flights would actually start but only reminded that the visa freedom with the US, that starts from November 17, 2008, is the first prerequisite for such regular flights to start. The president of the airliner Mr Bertold Flick was close to the earth in his pronouncements saying that it is too early to plan such an expansion to the North American market, particularly taking the global economic recession in
consideration.

The Latvian Minister of Transport is long known for his colourful announcements, and he could have simply announced that Latvian planes would start direct flights to the moon... . He was talking also on the Latvian Public Radio this morning, where he reemphasized his achievements in road building sector. It just sounded a bit silly that his only emphasis was on the upgrade of the Riga - Moscow highway. It is long known that transport supremo has his business colleagues in Russia. Thus starting to upgrade potholed highway to Moscow sounds normal from the business point of view. However, the Moscow direction is not the only one, and there are other priorities for the Ministry of Transportation and Communications as well.

Too much focus on his business partners is not good because it blurs the vision of a servant of the state (ministere in Latin-to serve). Hastily announcing plans about the expansion of the Airbaltic to the North American market, or building the Skyscraper city in RIX vicinity without real costs & benefits analysis is nonsense. Also transport supremo so far was used to have ´´relatively loose´´ resources of taxpayers monies, but the reawakening of civil society and ´´seven fat years´´ are fast drying up now, and it is expensive to borrow outside Latvia due to global financial crisis. That explains Mr Slesers announcement about his plans to run for the Maire of Riga office, thus another cow to milk? Continuation of his boastful image and disregard for the previously agreed rules of the game could appear ruinous not only for him but also for his political party. Next year´s municipal elections will be the real test for him and other members of the Latvian governing clique, unless the MP´s would not opt for change of the government and consequent muddling of the waters.


Text in Latvian: ´´Minister of Transport during the ornithologist days sneers - winged weaklings´´!


Cartoon: Gatis Sluka

Sunday, November 2, 2008

Economic crisis and demand after leftist politics rising

Economic crisis in Latvia is ongoing and it is finally reflected in the rising utility bills. Last week I received the bill for heating expenses - instead of the State regulator & the Latvian Gas monopoly (Latvijas Gaze) agreed 40% increase, it was all 100%!!! First, I will have to find out a rationale behind such an illegal gas utility price hike, and second, I find it hard to imagine what are pensioners and underprivileged people doing when they receive such bills... .

The government acted irresponsibly whilst allowing the Latvijas gaze and the State Regulating Agency to agree on such a rise prior winter sets in, and economic hardships are on the threshold. It is long known fact, that government officials in their Brivibas St. bubble have no clue about the life "out there". But it seems that the Chief regulator, Madam Andrejeva who is spending certain part of her free time gambling does not care about it either. Probably she should, if she is thus open - heartedly sticking to the ideals of the organization (the Communist Youth League (Comsomol)) she was borne from and an anniversary she was attending in the Riga Moscow house last week!

Diena reports the latest (October) party political ratings this morning. The rise of leftist parties is noticeable if one looks into the bottom and top of the chart, because Social Democrats (LSDSP) have finally budged from the slump. The rise of the Reconciliation Centre party (Saskaņas Centrs) is constant throughout 2008. Quite unexpectedly also the russophone radical Human Rights party (PCTVL) has achieved quite a significant increase (reaching 4,1%) of support last month. And all this rise of leftist politics due to the economic crisis only? Not really, because after the 2006 stolen elections the governing coalition parties support has slumped since March 2007. Also, the number of alienated (Nepiedalīsies) and disillusioned (Nav izlēmis) voters does not decrease, thus the popularity of the leftist parties clearly takes place at the expense of the governing coalition and fractional right wing opposition parties.



The numbers also show that if elections should take place tomorrow, then only one member of the governing coalition, The Union of Greens and farmers (ZZS) who's chief financier is the controversial Maire of Ventspils, would cross the required threshold (5%) for entering the parliament. Opposition New Era (JL) support continues its slow rise mostly due to their findings of questionable lawmaking in the Saeima. Prime Minister's party reaps the benefits of being in charge, but it is a slippery slope, because if Ivars Godmanis would be unable to manage economy well (and all signs show that) support for LPP/LC would simply die out. Also PM´s coalition buddies are rising voices about possible reshuffle of the existing government. The loudest voices came from the biggest loser (just 2,9% support!) during these precarious times, the People´s Party (TP).


The new leader of Latvian questionably conservative party announced that they could agree on forming the governing coalition with the leftist SC, but not giving them foreign, defense and ministry of finance offices... .

Traditional party political games continue. The governing coalition works in an artificially nervous regime and the stupidly proposed 10% cut of civil service irrespective of the size of the ministry creates too much a bad blood now.

The 2009 budget was passed in the first reading with as little as 53 AYE's . The PM and the Minister of Finance have already announced that if the budget would be signed by the president into law then they would immediately start cutting it early next year, thus why not do it now prior passing it in the second reading in the parliament? Would the 2009 budget really engineer the fall of the government?


P.S. Last week Edward Lucas was in Riga and gave a public lecture to the Riga Stradins students. Thank you Edward again!! The lecture was well attended, although I wished to see more economics (!!) and journalism students. The follow - up chat in Teātra bārs was very warm and heartily and gave me several ideas, that I will elaborate upon after touring Tartu and prior flying to Istanbul. Also, to those of you reading in Latvian, prior Edward Lucas public lecture in Riga I wrote a small opinion piece in Diena.

Sunday, October 26, 2008

Jungle laws of Latvian governance

Latvian Prime Minister prior adding the final touch and allowing the minister of finance to present the 2009 annual budget to the parliament announced that that Latvian public service would be utterly transformed, and that 10% budget cuts must take place in all ministries irrespective of their size. The size matters, Latvian politicians announce and population (1,37mlj vs 2.37mlj) and territory wise Latvia is bigger than Estonia indeed. But should it automatically increase also the number of state functions, because while in Estonia there are 11, relatively bigger Lithuania (population of 3,5mlj) 13 ministries, then why Latvian taxpayers have to keep up with 19?

Prior giving the next year´s annual budget project over to the parliament PM announced that 3 of the ``ministries`` or the secretariats of Social Integration, E-governance and Children´s ministry would be eliminated, and the E-business secretariat would be joined with the ministry of Regional affairs. Until today we have learned from politician´ s public announcements that it is almost impossible to liquidate ministries in Latvia, because it would leave those poor civil servants and their families without a work. Alright, so be it, and probably in Latvia we have humane governors, but what about the results of those ministries???

The Children's´ Ministry simply copies the Ministry of Welfare labours. E-business secretariat apart from using taxpayers monies to throw birthday parties also have not managed to introduce functional e-signature system in Latvia, and now finally Latvian administrators are visiting Estonia to learn from them how to accomplish such a complicated task... . The Integration secretariat has inflated from 2 to 47 administrators from 2004-2008 and they still contract private firms to do their job. When such news came out couple of month ago it created a scandal, similar to one when the Minister of the Secretariat Mr Oskars Kastens (a married man and a member of the Christian party) was happily flirting with the Diena correspondent. The scandal about contracting private firm made even the Prime Minister to announce that the secretariat would be closed, but probably he was too emotional when he announced such news.

These days it appears that the Secretariat will not be closed but transformed instead! You may wonder why? Because, if the Secretariat would be simply closed then Minister Kastens would have to return back to work as the MP in the parliament. But such a return would lose the benefits of his party mate and the head of the Saeima human rights commission Janis Smits. The latter person has created quite a stir with his intolerant announcements, and he is in the parliament with a weak mandate, for a period of time of Mr Kastens ministership...

So be it with finding jobs to party mates, but unfortunately it wont make the survival of the economic crisis easier. Also Minister of Finance does not help us here. At the time when next year´s budget is discussed in the parliament Minister Slakteris (TP) took a vacation... .Even his chief aid Miss Inguna Gulbe and her PhD degree cannot save Mr Slakteris from his questionable announcements, or sending his chief administrator Mr Bickovskis to participate in public TV shows does not hide the fact that the Minister of Finance is not up to his task. Now, even the new leader of the Peoples Party (TP) Mr Seglins wants to discuss whether it is the most appropriate time to take the vacation, and there are discussions ripe about his possible replacement. It would be reasonable indeed, because Mr Slakteris with his educational background is simply incapacitated to perform his duties.

Alright, and if the minister of finance would go, who would replace him then? Simply the list of candidates in the TP is rather short and I cannot imagine his replacement without general refurbishing of the government facade. The list of candidates is shortened by the weekend´s announcement about the former PM Kalvitis to be considered as the new Latvian ambassador in Moscow. If the government and parliament would even consider such an option how will it affect the behaviour of the Latvian president? Mr Zatlers made a very special precedent while not appointing the candidacy of Vaira Paegle for the ambassador´s post in the United Nations excusing his decision with the fact that Madam Paegle is not a career diplomat. How would he act now if his wife´s relative Kalvitis would be considered for the ambassadorship in Moscow, because the former PM is not a career diplomat either?

There are many questions out in the air in Latvia today. It seems that not only PM and president, but also heads of largest Saeima factions want to continue the status quo of Latvian governance. Instead of preparing balanced budget, or passing legislative amendments in election law (stipulating party financing principles), bringing about constitutional amendments (giving the president and certain quorum of electors to dissolve the parliament) and finally establishing mandatory tax and property declaration system MP´s must deal with crap. Last week former attorney of the Maire of Ventspils Mr Janis Grinbergs sent the stipulated amnesty bill to the Saeima commission heads. The bill is outright stupid, and immediately made even Mr Lembergs to deny anything to do with ``such a frivolous act of a private citizen Janis Grinbergs``. Fortunately the Latvian Council of Attorneys has to act now, because the former attorney of Mr Lembergs signed the stipulated bill as being proposed by the Council of Attorneys. Will Mr Grinbergs be able to say the same words today, when he will have to present amended amnesty bill to the president of the republic?

It is impossible to continue to manage the business as usual and earlier the political clique will understand it the better. Thus, is there upgrade of the Latvian government facade planned prior the June 2009 deadline?

Monday, October 20, 2008

Who´s in charge in Latvija?

One of deficiencies of the coalition rule is unstable government. Today´s Latvian society is tired of the transformation milieu and party political squabbles and it clearly reflects in Eurobarometer and other sociological polls. Legitimacy of the present democratic regime has declined to the record low levels. Society is also divided according to ethnic and socioeconomic lines. Yesterday the present Minister of Municipal Affairs (MNA) Edgars Zalans (TP) in the public TV emission outlined his realization about diversity of Latvian populace. While talking about the ongoing discussions what the MNA organizes all over Latvia about the new administrative territorial reform he said: ``that people in Kurzeme (Courland) want the consensus agreement and more self-government, while Latgale people crave for a strong leader who would show its subjects what to do.``

In Latvia such diverse political cultures clash when we discuss about the role of the central government. Unfortunately the discussion in Latvia always centres around personalities and seldom about the rule of law. Now it is almost a daily routine to hear that some civil servant from judicial, executive or legislative branch of the government is being charged by Corruption Prevention Bureau (KNAB) or Internal Revenue Service (VID). Corruption plague is endemic and there are no quick remedies unfortunately. Ineffective remuneration system in the public service does not help here because the public remuneration system has become a nasty playground for party political fiefdoms to reap the public funds according to gangsta rules - your relative strength in the hierarchy of the coalition government determines how many bites from the common chop one gets...

The PM with his relatively meagre salary is trying to bring an order to the warring fractions within the government and I am afraid that it is mission impossible. Government announcements conflict, and, for example, Ministers of Transport and Economics came out with conflicting news just last week about the future strategy of the Latvian economic development. The Minister of Foreign Affairs is traditionally diplomatic, but in his speech in the party congress he could not avoid critique upon government he is very much part of plus he must arrange Latvian president's forthcoming visit to Moscow. The Latvian government today seems as if working behind the scenes.

When there is a need after joint actions with our NATO and EU allies then PM helps the president and flies down to Tbilisi (August 2008). Together with the Minister of Economics PM supports the building of the coal powered electricity plant, and with the Minister of Foreign Affairs there is an open support for joint action in order to lobby for the EU energy action plan vis-a-vis the three Baltic States. In the meantime his own party member (the Minister of Transport Mr Slesers) openly declares that Latvia is now safely member of the NATO and EU, and thus its should concentrate fully on reaping benefits from its geographical position and look towards embedded cooperation with the Latvian Eastern neighbor.

Also PM very quietly wants to have the best candidate for the directors position of KNAB. If he wants to avoid the party political squabbles then his intentions are laudable. However, any secrecy in the present situation is only doing damage to his public image. If Ivars Godmanis does not care about his public image, and his workaholic habits clearly attest to that, then so be it. But if he cares, and his weekly DJ performance on the radio SWH Rock airwaves and drumming qualities at the Queen concert in Riga attest to that, then he better start coordinating the policy making process and start juggling among the present coalition members because otherwise the coalition members will simply juggle him out of his post prior the cold winter sets in.

Thursday, October 16, 2008

Orange balloon deflated

The coming weekend the leading Peoples (TP) conservative party will have their congress. In October 2006 the TP together with the Prime Minister´s & transport supremo´s First and Latvian Way Union (LPP/LC) parties stole elections. After this TP managed to get 177, 481 total votes that gave them majority of seats (23 and +3 increase in comparison with 2002 elections) in the 100 member Latvian parliament.



It was Aigars Kalvitis who became the Prime Minister on December 2, 2004 after inability to agree on the 2005 budget and consequent withdrawal of their support for the Indulis Emsis (ZZS) government even though it was the TP finance minister who prepared the budget. A. Kalvitis led the country until December 5, 2007, when after ominous Cappuchino revolution extremely unpopular A. Kalvitis had to resign. Gradual decline of his popularity was fostered with his own colourful expressions, and new year promises to provide ``seven fat years`` was probably the most ironic among them.
I voiced my disapproval about the working methods of the former PM for quite some time. In any economics textbook it is clearly written that you ain't able to cool the overheated economy by flooding more money (the EU funds) into it. Instead of regulating the overheated economy (it was galloping at the stunning 13,7% in early 2007) he simply listened to high school educated transport minister, who ´s only slogan was `to simply accelerate the economy!`. Thus, instead of reaching the promised mean level of EU living standard in ten years the former Pm failed to perform thus needed structured reforms, institutionalize the rule of law and as a consequence all Latvian inhabitants must experience the hard landing of Latvian economy.


Economic crisis does not help to gain momentum for the TP spin doctors. Questionably conservative party was founded in 1996 and it uses shiny colours to distinguish itself from other representatives in the conservative wing of the political spectrum. The coming party congress is staged, and it is known already that the incumbent Minister of Interior Mareks Seglins will become the new leader of the TP. It is also known finally that Aigars Kalvitis plans to leave the parliament and politics, and Mr Kalvitis just approved such news while talking on the Latvian public radio.

Former PM sounded not only smug but outright ridiculous in the Wednesday´s TV show as well on radio this morning. He still considers that he did everything (!) right and blamed liberal opposition for creating too many bad news in the Latvian public space. Alright, so be it with his understanding about the political process in democratic society, but he sounded utterly stupid when in the weekly Kas notiek Latvija TV show former PM blamed Icelandic banks and Lehman Brothers bankruptcy for the ills of the present Latvian economy. It is over for the former PM now and good luck with his ice-hockey endeavours! Actually his latter activities have made Latvian public suspicious about his too close ties with the energy tycoons behind the Latvian eastern border. Probably that explains why the former PM was so easily discarded by his former party mates?

Whatever the party mates think about the former PM, the TP hopes to rise from the existing slump where majority of the Latvian political elite has found itself. While orange coloured TP will try to pump up its rank and file members this weekend, it is the Latvian president who is acting again. It was very much due to the agreement between the coalition parties, and TP as the largest among them, why Valdis Zatlers became the president. Now, the president has acquired a new head of the chancellery and his press secretary already left the office. There are certain changes in the air. I am sceptical, however, about the prospects of replacing some politicians and/or civil servants to change the post-soviet inertia in the Latvian political culture. It seems as if the civil society is wearily waiting for effects on the rise of utility prices prior the winter sets in. In the meantime the parliament is discussing the budget with the already engineered 1,87% annual deficit, the PM Godmanis is trying to find a new head of the Corruption Prevention Bureau (KNAB), and the president with his family continues to enjoy his hobbies...



Photo: Aivars Liepinsh