The Riga Southern bridge - citadel of inefficiency

State Audit office published report about the construction process of the Southern bridge yesterday. After the media started questioning expenses of the newly built Southern bridge last year the Riga City Councilors behaved as if nothing happened. The State Audit office started their investigation in June 2008, and their conclusion is simple - about LVL27mlj. (EUR38mlj) of taxpayers monies were simply squandered due to the lack of legal enforcement of existing rules, and non-existence of financial oversight over the building process! The incumbent Maire of Riga called this revelation as shocking, while the former Maire who started the building considers the whole process of building the bridge as the most transparent and effective in Latvia, and blames the Prime Minister Dombrovskis about barring him to access the EU structural fund monies for running this project!

It is simply sick and tiring to follow the childish behavior of the outgoing political "elite" in Latvia. The papers are full of smaller or bigger scams and corruption cases, thus I have a feeling as if there is a serious need after some external juror from Brussels or Washington DC! The Augean Stalls of Latvian post Soviet nomenclature must be cleaned in order to bring Latvia out from the present economically malicious situation. You may wonder why I am questioning the inability of Latvian court system and civil society to manage this process?

Because, even while the new government gives encouraging signs of improvement, the old boys networks and the president being quiet about his March 31 deadline does not decrease suspicion in the society about the ability of the "presently elected councilors" to suddenly change their behavior. Just look into today's Diena , where the former Transport supremo without any remorse openly declares, that he would continue policy of nepotism, if being elected as the new Maire of Riga! In the same paper it is announced that Transport Supremo's appointed buddy in the RIX board Rota Mūrniece is accused in felony, and Mr Šlesers driver's son must leave now the board of the Latvian Passenger Railway Co., while another of his protege's must leave the well paid job of the press secretary. In any other liberally democratic country the full fledged investigation would ensue, and such "ministers" would be barred from the public office for life!!

Cartoon: Zemgus

Transport supremo renewed his mandate in the parliament, however, and plans to carry on with misuse of taxpayers monies in the Riga City Council. His understanding about the political process ends with simple understanding - there is nothing else except the zero sum game! Rule of law for him is founded on principles of bending it to the whims of more powerful and affluent folks. Transport Supremo is not a democrat, and lets hope that Riga citizens would keep it in mind, while the Latvian judiciary is still unable to start prosecution of this openly law transgressing person after breeches of law found by the State Audit office. Riga taxpayers have allowed themselves to drag into the financial serfdom for the next twenty years due to the the policy of nepotism and negligence of the former Maire's of Riga, thus do citizens really suffer the collective Stockholm syndrome?

Text in Latvian: Riga City Council wheel barrows "should get quietly over the bridge"


Cartoon: Jukka Rislakki

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

Photo: Delfi

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

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

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

Cartoon: Gatis Šļūka

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


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

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

Updated

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

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

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


Photo: Aivars Liepiņš

From Riga to the moon?

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

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

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


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


Cartoon: Gatis Sluka

"Metalic birds" leave ahead of looming crisis

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

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


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

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

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

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

Photo: Aivars Liepinsh

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

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

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

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

Competition Council and Transport Supremo at loggerheads

Latvian Transport Supremo in Latvian language media lacks appreciation for his unending efforts to attract money into Latvia. It is a good idea but Mr Slesers forgets that he is not a businessman but POLITICIAN. That means that he cant work like bulldozer forever disregarding interests of other members of society. Transport supremo might note that the will of the majority of the Latvian people was to elect the right wing government.

Here he is partially right because he knows too well how he paid for the third party advertisements during the election campaign this September. Another aspect about the victory of the right wing coalition is the fact that the only virtue of the right wing coalition is naked individualism of couple or three oligarchs. If you truly care about righ wing ideals then why was there decision no to lower income tax? And what about the fiscal discipline -why is there budget deficit at such volatile times when greenback is shaky? Look into Estonian record you members of ruling coalition (aye, aye Minister of Finance Spurdzins does not like this caomparison at all)!

Transport Supremo knows basic business techniques but I soemhow feel that the business practice he preaches is still pretty ''wild Eastern'' or if you want it to sound politically correct it is post-Soviet. Mr Slesers insistance on the rate of the discount for Rynair and Air Baltic is transparent, so KNAB isnt it suspicious? What makes me worried is the ''good practice'' of transport supremo to blame others as incompetent (blaming Ieva Jaunzeme, Director of the Latvian Competition Council in Diena, 05.12.2006). The manner of blame is the traditional Soviet style wish to see conspiracy behind decisions of the Competition Council, but in reality it allows some hotspur activist to puch through his political ambitions or to blame others for his or her own lack of initiative.

WAKE UP Slesers and other likeminded folks - Competition Council is collective organization and its statutes specifically mandates it to care about the public good! It means Mr Slesers that your care of millions of Rynair and Air Baltic passengers (any clue that majority of them are Brits for example) are at loggerheads with Ms Jaunzeme who has to think about 2mlj. taxpayers including you Mr.Slesers!

VS