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 to SAS last week. Yesterday SAS announced that it would sell remaining 47,2% of the airbaltic stocks to the management by January 31, 2009. Until now the 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.


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