SSE.LT

Preamble

I have never seen a country where political wings are formed according to nationality. Yet, Latvia has succeeded in this field with right-wing parties being comprised almost completely by native Latvians and left-wing parties – by native non-Latvians. Using nationalistic slogans, twisting the truth and playing on the dreadful memories of Latvian folk, right parties have accounted for the major part in Saeima (state parliament) for already 15 years. The global financial crisis gives Latvian citizens a unique chance to check if the ruling parties are seeking prosperity for the state or just personal welfare.

All of a sudden

It seems to me that the government of Mr Kalvitis (previous Prime-minister) was following the philosophy of Madame de Pompadour who said once ‘After us, the Deluge’. At those sweet times it was not a problem to build the South Bridge in Riga – the most expensive infrastructure building since 1990 whose final budget increased almost four times in comparison with the initial one. It was extremely important as well to spend millions on the national library.

Nevertheless, all the good things come to an end, and it was interesting to observe how the present Latvian government suddenly admitted that outrageously high GDP growth and overwhelming foreign investments have passed away; that inflation has scraped the skies; and finally, that the state budget has become rather unbalanced.
‘This is not a recession’, said Mr Godmanis (current Prime-minister) and promised to land the economy softly. Unfortunately, his perfect plan was disturbed by an evil Economics professor and a popular Latvian singer. Both dared to question the stability of the most stable currency in the universe – the Lat. Therefore, it was decided to prosecute them in order to prevent further problems in the economy. The world has never seen a more elegant way to fight financial crisis than by oppressing the freedom of the speech.

To strengthen people’s faith the Prime-minister has discovered a magic formula – a spell that makes the Lat safe and secure. Every citizen of Latvia who truly loves his Fatherland must three times per day kneel and repeat – there will be no devaluation! The solution seemed to work well until one day Mr Slakteris who is in charge of the Ministry of Finance confessed that the posibility of devaluation was discussed at an international level in the IMF. ‘Et tu Brute!’ exclaimed Mr Godmanis; however, he decided to keep Mr Chief Finance in the government because of his enormous experience in agriculture and defense areas.

Being inspired by maintaining his place, Mr Slakteris used the moment to enlighten Western countries about current situation in Latvia and its tremendous success in fighting the financial crisis. Sadly, the questions asked by a Bloomberg journalist were tricky and moreover in English, which obviously made Latvian Finance Minister to forget what he was intending to speak about. Afterwards he put the blame on the journalists who did not make a Hollywood happy-end movie out of his 30-minutes-long master speech.

Shortly before, unexpectedly the biggest Latvian bank with local capital – Parex Bank – was nationalized. Of course, it was a big surprise for the Financial and Capital Market Commission, which is supposed to supervise all the banks in Latvia. Indeed, according to their information, Parex Bank was completely transparent in its operations, had good reserves and was virtually unsinkable… Probably, people working in the Commission were not aware of the sad story of Titanic. Meanwhile, the bank was bought by the state which guaranteed the security of all its deposits.

The final ‘cut-down’

The purchase of Parex Bank increased the hole in the state budget through demanding more and more money on sustaining the bank. Therefore, Mr Godmanis decided to give the budget the final ‘cut-down’ releasing it from everything burdening in government sector – too high wages, bonuses, and expensive parties. At the same time he decided to raise excise, special, and value added taxes having slightly decreased income tax for employees. Moreover, it was decided to ask international and European financial organizations for monetary help.

In order to show that the government is serious on passing the stabilization plan into reality, Latvian President – Mr Zatlers – was immediately returned from a winter resort. In turn, Mr Zatlers – an experienced surgeon in the past – shared his experience on the topic. I assume that he might have said this, ‘In medicine it is needed to cut off all affected parts of the body to keep the person alive’. The question is, how long the person will live afterwards and what kind of life it will be.

The stabilization plan is not bad in a way as it limits consumption, is intended to bring the inflation level down, and should balance the budget and current account. There is a small ‘but’, though. This plan should have been implemented much earlier when the economy was overheated and most experts suggested that it should be cooled down a bit. Now the plan seems to me like healing cancer in the late form, to put it in a medical way. The plan faced a strong opposition from both employees’ and employers’ unions. As Peteris Krigers, the Head of Free Trade Unions Association, admitted, ‘This stabilization plan will eventually lead to the stabilization that we see in the graveyard.’
Nevertheless, late in the night on December 12, the plan was passed by the majority of Saeima. In the process some delegates from opposition were singing folk songs, some were sleeping, some were said to be drinking alcoholic drinks – all in all, everyone was entertaining as much as they could. However, one should not forget that in the morning after such festive parties comes hangover…

Rescue Rangers

As Mr Slakteris mentioned many times in his famous interview to Bloomberg – the government is in the process of official negotiations with the European Commission and the International Monetary Fund. The total amount of financial help is still unknown with previous estimates being between 1 and 5 billion euros. Strange enough but for the first time the government was able to insist on some of its conditions, namely, no devaluation of the Lat. I wish it could have put so much effort into preserving the sugar industry or protecting local producers. Financial loans are not disbursed by charity organizations and they require certain conditions to be fulfilled. At the moment no one informs people of Latvia what is the price of financial intervention.

Although there were no official negotiations with other countries but at least two of them are willing to help Latvia. Naturally, one of them is Sweden, whose banks have spread all over the Baltic States and possess the biggest financial institutions in Latvia. SEB and Swedbank have issued credits for some billions of Lats; therefore, Swedish government is interested in getting this money back. The second country to help Latvia turned out to be Estonia. Personally, I have nothing against it but the fact that the sister-country facing the crisis itself is ready to offer help makes me feel shame for Latvia.

Post scriptum

It’s a pity that for 15 years people in Latvia have been electing parties that led the country to such disgraceful situation. Hopefully, Mr Godmanis knows what he is doing and he certainly has to try better than in the beginning of 1990ies when he also was a Prime-minister. Unfortunately, at that time most of his ideas came into a wrong direction.