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.

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

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

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?

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.

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

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... .