Tuesday, October 7, 2008

"Metalic birds" leave ahead of looming crisis

Today Latvian cabinet in government session and amidst peaceful trade union protests in front of the government building planned to pass the 2009 fiscal budget (Ls5,46 billion planned revenues and Ls5,79 billion planned expenses) with the -1.89% GDP deficit. Last week the Fitch credit rating agency already downgraded the Baltic States` long term credit rating to negative. Now, LETA officially announced the "bad news" about Latvian cabinet engineering not the best scenario for upcoming years. Thought decreasing still budget deficit is planned for the 2009, 2010 and 2011! Funny, but in the meantime the Minister of Finance propsed to create the emergency reserve fund last week and as if nothing has happened in questionably governed Latvian environment and everything would be calm in international markets Mr Slakteris plans 2% GDP growth, 7,6% annual inflation, and 8,1 % unemployment rate for 2009!

The governor of the Bank of Latvia (BoL) Ilmars Rimsevics voiced his concerns about the budget deficit in his interview to the Latvian Public Radio, particularly pointing to Estonia and rhetorically asking why Latvian Northern neighbors can follow rational policy making (passing balanced budget) and Latvian government cant?

Prime Minister Ivars Godmanis does not agree with the BoL governor concerns and rhetorically responded that he would let the chicken roost first and wait till the news come in next autumn!Thus lets wait and see the apples turn rotten I should ask??? Also the leader of the opposition Sabiedriba Citai Politikai party (SCP) Aigars Stokenbergs put down his firm conviction in his daily blog, that the trust in any rational policy of the present political elite is lost.

Perhaps the Prime Minister still has not gotten out from his ambiance of the early 1990`s, or probably he is still having a spell from the energetic and comercially active transport supremo? The fact is that transport supremo was too busy managing his buddies business, thus busy that he forgot to implement Ls 90 million from the EU structural funds in the next years budget in order to fix Latvian potholed roads, let the Latvian Post Plc go bancrupt and rescued it with the taxpayers monies, mismanaged public funds in his ministry etc. with liberal media foaming and continuing the business as usual due to having his party mate (Ivars Godmanis) blessing.

Transport supremo has grandiose long term plans in the RIX airport. I doubted the Minister of Transport plans already a year ago in the same blog entries. His grand plans to have 20 million passenger turnover in RIX airport by 2032 sounded too ludicrous, therefore also his grandiose plans to rebuild the RIX international airport. Simply to achieve such plans the RIX has to take the passengers away from already top notch and adjacent Scandinavian airports, or to expect that Chinese and Japanese tourists would choose RIX instead of Copenhagen, Helsinki or Stockholm. Also he could expect that suddenly Central Asian and Russian middle class tourists would become rich and would start flying using RIX as a transit depot. Again I assume that the transport supremo is wrong, because if he could count on some Central Asian sultan clan members becoming rich and continuing usage of RIX as their transit depot, then economically nationalist Russia would not give such a sweet chunk of aviation pie to the Latvian transport maverick, even if he has his personal buddies behind the Latvian eastern border.

In the meantime airport must live also in the short term. Already some time ago British Airways left the RIX, this summer also Easyjet, last week Austrian Airlines, and today also Germanwings plus Aer Lingus left the suit.

Photo: Aivars Liepinsh

This week bad news came from Vilnius where Lithuanian authorities accused the RIX international about continuing unfair competition and arrested airbaltic.com plane. The Lithuanian airliner accused the Baltic Air Corp. in unhealthy competition in the Vilnius Airport where airbaltic.com has about 35% of the market share. It is known, however, that also Latvian Competition Council already before have accused the Airbaltic over unfair competition in the RIX international airport. The public in Latvia is ready to receive news from Brussels any time soon about the end result of the transport supremo`s hard handedness and possible revoking of the unfair approach to "chosen airliners" in the Riga International airport and consequent fines from taxpayers pockets again...

Airliners leave the RIX due to the decreasing number of passengers, declining level of service in downtown Riga, and the looming global economic recession. Nevertheless, the transport supremo and his underlings still weave their megalomaniac plans. While more than 2/3 of Latvian domestic bus lines were closed in early September the government still subsidises (with about Ls4 million) the domestic aviation industry with super cheap air-fares from Riga to Liepaja and Ventspils. While number of tourists flying to Riga is drying up the lieutenant of the transport supremo and the head of the RIX international Mr Krisjanis Peters naively reiterates about the huge reconstruction plans in the RIX environs and building the Skyscrapercity!

While world economic crisis is raging and Icelandic government announced its "almost imminent insolvency" the works of Latvian government reminds me about a feast in the Plague time. Iceland was hit very much due to inability to weather the global financial storm during times where governments do not have clout over the free capital accounts. The bad forecast for Iceland was voiced already couple of years ago, but the years of cheap credit bonanza made probably Icelandic policy makers numb. Nevertheless, the Icelandic government had to beg Kremlin for emergency loans today with just 10% of the current account deficit.

The Latvian current account deficit has declined to the " relatively low" 15,6 %. Current account deficit is not the only determinant in the economy, and the governor of the BoL assured that Latvian government can weather the storm of open capital markets. If 500 000 population Iceland had it hard to contain the storm in the situation of extremely tight credit markets, then in gloomy Latvian situation it makes me reckon about the old truth that the real crisis never announces about its arrival... . The airliners are leaving the RIX international airport and I can just hope that airliners` actions would emulate behavior of migratory birds and I would see them back somtime next spring?


Magnus said...

I agree on your opinions on RIX. What Mr. Slesers seems to forget (or more probably doesn't care about) is that the domestic market for air transport in Latvia is very small. Still many people can not afford to fly or go on holidays abroad, and the distances for domestic flights are too small to ever be any source of income. I think all projetcs of this kind must be based on a much more stable home market than what can be said about Latvia now. Only too sad that Mr. Slesers seems to be allowed to run Latvian transport politics alone.
Btw.: do you have any opionions on how AirBaltic will survive the winter? Both SAS and Latvian government have more than enough else to spend their money on...

Baltic said...


Just noticed your inquiry, and to answer your question regarding Airbaltic -

Survival very much depends on taxpayers money slushed to save Airbaltic.com if such need would arise. because of Brussels regulations they cannot do it directly from the budget (against the competition laws), but nobody prohibits to make a multiple channeliing of monies through state firm cartels and thus save the possible victime of harsh winter:)

So far I ahev not heard, that airbaltic.com would have problems, but winter have not started yet:)

What makes you reckon about such a possibility, any tip, early SAS announcement about giving up the idea of buying airbaltic shares?

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