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.")


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. )


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.


"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

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.