Friday, August 31, 2007

The last day of August

September is on the threshold, thus decided to write a small piece after spending a week in Finland. My relatives from Boston arrived safely to the Helsinki Vantaa airport, and we nicely toured the South coast of Finland. Since two days I am back in Latvia now, and rather customarily there is something significant happening when person leaves ones country. This time it is the sword of Damocles that has started to slowly fall over the heads of Latvian politicanos. Also the administrative reform of local municipalities after 10 years of constant calvary is finally coming to its end. And on top of it, after ersatz visit of the ECOFIN commissioner Mr Joaquin Almunia to Riga this summer, the government after several years of budget deficits has balanced this years´ budget.

The sword of Damocles is falling over the head of Speaker of the Parliament Mr Indulis Emsis. Among his "trademarks" are colourful or outright stupid pronouncements (just for the intro. his omenous call for MP's to convene in the red glass of the parliament prior parliamentary recess in June 2006...satiksimies sarkanajā glāzē). He was called to the prosecutors office, and in addition to the ongoing investigation about shady deals of the Maire of Ventspils (so called list of stipendiats), he was also asked about the 10 000$ in cash stolen from his sack in the parliament building. It is hard to believe the clarifications of the speaker of the parliament, that he took the stack of greenbacks to pay for the tractor, which apparently he never bought. Still, the speaker is puzzled in his interviews about the fact that nobody wants to believe his integrity, thus he announced yesterday that he might even resign. If so, it would be a novel thing in the post-Soviet Latvian history and such a relief for the dormant civil society in Latvia.

The head of the Farmers Union part, Mr Augusts Brigmanis and colleague of Mr Emsis sticks to the legal presumption of innosence principle. He supports both the speaker of the parliament and the maire of Ventspils, and what else he should do in the cynical playfield of the Latvian realpolitik? Aye, the political culture in Latvia changes in a snail motion, and perhaps only exogenous shocks or endogenous implosion, or combination of both would shake up the traditional and dormant political culture of the post-Soviet nomenklature.

Anyway, the administrative reform of local municipalities is approaching its end, and the Minister, Aigars Štokenbergs has been very instrumental in getting to the end of this illogical task. There are obvious disagreements in some municipalities, and they were nicely exemplified in the Latvian "citadel of democracy" the Kas notiek Latvijā? TV show this Wednesday. Nevertheless, the old prowerb "whenever an ax cuts the chips fall" must be used here, because the political gerrymandering is possible also after the big reform is over. Thus, one big reform might have an end if the government coalition fundamentally accepts the final reform blueprint on September 3.

Finally, we come to the issue of Latvias balanced budget for this fiscal year . In today's the MEP Valdis Dombrovskis argues correctly that tactics of the government replicates the practice of Andris Šķēle government in 1996 ( It means that the balanced budget actually does not touch the sacred cow of the Latvian governance system - ever increasing and burgeoning class of state administrators. There are no comprehensive structural reforms of the Latvian administrative system envisaged. It means that the gaping hole in the 2007 budget is going to be paid by pensioners, probable privatisation of the 23% of the Lattelecom state shares, and dying research potential in the country named Latvia. Basically, it means that short term oligarchic interest prevail over the long term strategic interests of the majority of its citizens. Thus, the legitimate question here is - for how long it can continue like this?

Monday, August 20, 2007

Latvian PM searches for destructive elements...

There was an radio interview with the incumbent Latvian PM this morning. Most of the questions concerned, rather obviously, the delicate situation in the Latvian judicial system. Mr Aigars Kalvītis public speech skills have not improved, and since the daparture of Jurģis Liepnieks as the head of the PM's bureau, the PM's negative public relations stunts have become customary.

Instead of dimplomatically trying to avoid sensitive questions and honestly admiting that there are problems in the judicial system, PM tried the old fashioned tactics of an offence. PM simply stated that the biggest issue for the Latvian government now, is to find who masterminded the recordings of prominent barrister Mr. Grūtups. For Gods sake, you must be crazy to say that prime minister, while seeing how low the approval ratings of most of government branches among Latvian public are! Last Friday PM announced that he would not comment on the authenticity of tapped telephone recordings prior General Prosecutors Office has made its conclusion of the investigation. Now, totally opposite to his own words, Aigars Kalvītis tries to find conspirators against prominent barrister, because "according to his knowldge Mr Grūtups is a good barrister indeed, if he has not lost a court case throughout last decade". Mr Kalvītis even proposes to convene the emergency session of the State Security Council. To me it seems that Mr Grūtups is not only personal barrister of the former PM Mr Andris Šķēle, but he is a person who is simply above the law.

In the similar vein also the head of the Latvian Lawyers Asociation, Mr Aigars Borovkovs in the best KGB style, asked not for investigating substance of the whole issue, but asked to look for the reasons why did tapped recordings leak to the press, and, who is behind illegal recordings. It means that whilst following the best governance practices of the totalitarian regime, the Latvian elite is not even interested about the substance of the problem, but about the mode of leaking it out of the "governing bubble" instead, sad... It reminds me the police state methods, and the Latvian Sworn Barristers Association representative Ms Guna Kaminska is no better. In her interview to the LNT TV station she simply dismissed the allegations as baloney. She assumes, that even if those telephone converstaions were tapped, it took place seven years ago, thus the legal principle of time delay works, and noone could possible face charges for that. The high point of legal nihilism, indeed! By the way, and what about the prominent inscription above the grand hall in the Council of Ministers "Viens likums, viena taisnība visiem" ("Nobody is above the law")?

Mr Grūtups has started to change his official pronouncements as well. On Friday, in his customary omniscience, Mr Grūtups rather foolishly announced that those recordings are not correct. On Monday, when the "Home made adjudication" started to have its snowbaling effect, Mr Grūtups changed the tack and announced that those tapped records are fake and he has nothing to do with them. Is the "super-barrister" painted himself into the corner now, or simply letting the public opinion to steam off and discredit the whole Latvian legal system, thus gaining points for winning autumns biggest court case - the digital TV affair (Latvia vs. Kempmayer Ltd. (former PM Šķēle)?

Whatever the strategy of the barrister who appears above the law in Latvia one issue is clear, there is very little legality in Latvian judicial system. There are diferent clans from within the system now coming up with conflicting announcements. The crux of the problem - the substance of the rule of law - is not even mentioned in pronouncements of ministers, and that is very sad. Also my dear classmate, the Minister of Justice, Mr Gaidis Bērziņš is still on vacation, and he is representing the junior coalition partner Fatherland Union party anyway. Therefore, even if Minister of Justice would come up with enlightening pronouncement it would not have a political backing of the governing coalition, unless the governing coalition is rock solid and would not allow Minister of Justice personal extravaganzas.

Aye, aye, aye and PM is simply continuously dissapointing... It became known that apart from his famous announcement on Latvian TV, that he is a "sole provider of stability in Latvia"(es esmu stabilitātes garants valstī), he has come up with another pearl. The BNS journalist asked, whether he [Aigars Kalvītis] reckons it is ethical, that a person [Aivars Lembergs] is simultaneously maire of Ventspils and sitting under house arrest because of criminal investigation about money laundering and embezzlement charges? The PM answered that, "whilst following the classical definition, ethics is human action, that ensures his survival"!

Voila, and here we go again! The Darwinian survival of the fittest rules are still prevalent among the present Latvian political elite. It was the Soviet ideology that prevented critical discussions about the way society runs itself, or the way public treasury is controlled. Unfortunately the Soviet totalitarian governance practices are very much alive among the political elite, where the state is omnipotent and any criticism is considered by definition as destructive and threatening the foundations of the state. Whar else one may expect from the Prime Minister, who is not even ashamed to call ones citizens as mere barking canins? Society is not wholesome but heterogenous in Latvia, and sooner you learn this primne minister, the better for you, however, I am rather negative about his ability to learn anything...

Saturday, August 18, 2007

Latvian Mustafa Mohammed, when?

Just happened to watch athletics competition in Genk (Limburg, Belgium). In 3000m steeple race the winner became Mustafa Mohammed from Sweden! He ran out the second best time in Europe this season, thus having good prospects prior World Championships in Osaka. But its not track & field races I want to speak in this blog entry, but the nationality question in small countries (Latvia and Estonia) sports competitions. Since the ideological competition between the capitalist free world and the socialist "people's democracies" ended in the late 1980's, once exclusive European national teams have started mixing in representatives from other cultures. French football team or Surya Bonalie (figure skating) is probably best example here, but in the same manner for quite many years Netherlands representatives have had their athletes from former colonies. In today's Europe there are such prominent examples as Wilson Kipketer from Denmark, A. Obikwelu from Portugal, Samuel Kirwa from Finland, and now also Mustafa Mohammed from Sweden.

Central European states still have many local representatives who are "hungry" and find that sports competition is a way for upward mobility. Jamaica born star sprinter Marlene Ottey and Nigerian born Emmanuel Olisadebe are rather exclusive, because they represent Slovenia and Poland due to familial reasons. However, they are unique because they were the first ones, but with years passing buy and economy improving, probably there will be more Asian and African representatives also in Central and East European teams? It is a probability question, and for home grown Asian and African representatives to appear in Latvian or Slovak jerseys the most important question is the improvement of economic situation. Growth of the economy will demand more immigrant labour, and also enable the national sports authorities to look for best talent in Africa and Asia.

For Mustafa, Xanxi or Karim to represent team Latvija are still some years to come. Nevertheless, to prepare for such day coming there is still question of xenophobia on agenda. It is not good news that in the Baltic States routine beatings by skin - head gangs or punks are not diminishing, with no Asian or African communities actualy living here (which shows how indoctrinated and brainwashed by internet propaganda the home grown punks are)! Multiculturalism can definitely go out of hands when government does not control it, and riots in Clichy sur Bois in Paris suburbian area are very good example of that. In the meantime number of Somali, Bosniak and Iraqi refugees is scrupulously monitored in Finland, and does not cause widespread domestic ruptures for example.

Actually for Estonian and Latvian common folks the first issue should be to digest that societies are multicultural already due to the legacy that the Soviet period. Just to name Latvian football players Igors Stepanovs and Aleksandrs Starkovs, ice hockey star Sergejs Žoltoks, star runner Jeļena Prokopčuka, or Athens olympic medalists Vadims Vasiļevskis and Igors Vihrovs, and Estonian footballers Sergei Terehhov or Andrei Stepanov, and most of the Estonian ice-hockey team, and it becomes clear that Eesti and Latvija jerseys are worn by the best athletes. Their individual qualities are more important than their collective belonging. To accept this reality in full diversity Latvian and Estonian multicultural teams could be used in education campaigns. Education campaigns are needed to avoid the hypocricy in the Latvian language, when even commentators themselves very often mix such terms like latvijas (team latvia) and latviešu (team representing ehnic latvians). With such education campaigns population would become more tolerant, there should be less xenophobia, and thus we should see Estonian Xianxi or Latvian Mohammed within a decade. But for this to happen economies must turn the wheels of countries forward. Estonian economy grows pretty well, and lets hope Latvia could emulate its Northern neighbour more (especially where good practice of governance is concerned), even if it is hard to accept it on the official level:)

Friday, August 17, 2007

Is there justice in Latvian judicial system?

Simultaneous shock and dismay in the Latvian public sphere followed after appearance of the book by Jānis Brūklenis "Tiesāšanās kā ķēķis" ("Home made adjudication") in bookstores today. Jānis Brūklenis is a nickname for prominent Latvian free lance journalist Lato Lapsa. He is famous for investigating shady deals of Latvian nouveau riche and incumbent political "elite". The shock of his new book was caused not so much due to the way Mr Lapsa got his data, but due to the realization that judicial system in Latvia is thoroughly rotten.

The big fuss prior the book appeared on shelves made me think that it is a media hype for promoting sales of the book. However, after watching the interview with the Head of the Supreme Court, Mr. Andris Guļāns in the Latvian TV evening news yesterday, and learning judicial experts opinions I realized, that this is a must read book for the end of the Summer in Latvia. Actually on the first day all copies were sold, thus the book is becoming a national bestseller.

The author of the book received anonymous transcripts of telephone conversations, between most prominent barrister in Latvia, Mr Andris Grūtups (who smugly announced in an interview to the Latvian TV, that he has forgotten when he last lost a court case...) and numerous judges in the Riga District and Supreme Court of Latvia, into his letterbox. Mr Lato Lapsa delivered the transcript to the General Prosecutor's office and it would be foolish to discuss the authenticity of transcripts, which rather ironically were translated into Russian (the same as transcrypts of the Jūrmalgate affair), until then. While the Prosecutors office investigates the data there are still several isues to be raised. First, it is clear that whoever taped telephone conversations of the prominent Latvian barrister without court's permission did it illegally. Second, even if those records of telephone conversations were performed illegally, it should not deter investigation of the terrifying situation at the centre of the Latvian judicial system (also the Head of the Supreme Court agreed on such formulation and openly admitted that he had doubts about some of his colleagues). And finally, this scandal on the grand scale should foster cleaning up of the judicial system from corrupt judges and barristers, to repeat the words of the judge of European Court of Justice, Mr Egīls Levits.

Mr Levits is insider of the judiscial system and person who has been very instrumental in creating Latvian judicial and constitutional system after regaining independence in 1991. Nevertheless, yet again the present scandal of the Latvian judicial system shows difference of the governance style between Latvia and Estonia. Sixteen years ago, when most State administrative aparatuses were formed from the scratch, it was Estonian Ministry of Justice that decided to ensure the impartiality of the Supreme Court. For this reason the best young legal experts at that time were sent to the Western European universities and Supreme Courts for training sessions to gain thus needed skills. Those young judicial scholars without ties to corporate networks formed the nucleus of the Supreme Court of Estonia (situated in Tartu by the way), and enables European standards in judicial practice today. Latvian Ministry of Justice failed to pay attention to such aspect, and thus we face the scandal today. The latter was caused by he very failure of Ministry to grasp the crux of the problem in the early 1990's, and the fact that Latvia is a small country with corporate ties between persons working in the judicial guild.

Until the prosecutor's office announces its verdict the public will probably discuss and politicians should decide how to move forward from here? The scandal undermines the very foundations of the democratic regime in Latvia, just to remember the extremely low trust of government, parliamentary system among Latvian public ( Also historic parallels make me thoughtful here. Mr Andris Grūtups is considered a personal barrister for the former PM Andris Šķēle for quite many years, and he is also an author of rather numerous laws in Latvia (denationalization and civil law for example). Mr Grūtups is openly consulted by judges, and this fact only underlines the question of ethical standards of today's judges in Latvia. In ddition the Mr Grūtups example shows how defective is the balance of three branches of government in Latvia.

The historic example I wanted to draw parallels with here, is the polemick of Thomas Paine in the Rights of Man. Thomas Paine argues (pp. 81-87) with the patriarch of the conservative movement Edmund Burke about the rationale of the French revolution, and he very neatly delineates essential problems of the French state prior the eruptive events of 1789, the corrupt courts among them!

I do not want to draw as drastic parallels as the British radical at the turn of the 19th century did. Similarly, I do not believe that proposal of the Diena columnist to fire all judges en toto ( ) is achievable. It would be a too radical proposal, because the question arises who should replace the corrupt ones (rather huge number) then?

Mr Ozoliņš proposes to simply import them from Western Europe. Mechanically it is possible, but the question of human resources would be at stake here again, because Latvian language translators are already in dire shortage in Brussels today, for example. Perhaps, English should be introduced as a official language in Latvia, as I once proposed for the sake of alleviating the tensions between indegenous Latvian and russophone populations? It would certainly make the lucrative labour market (opening up due to the scandals as the present one) attractive for many skilled English speakers in the long run. It sounds futuristic now, but the proposal does not sound so ludicrious considering the fact that several politicians in such traditional society as in Japan have thought about such an option in order to keep Japanese workforce competitive on the world stage. Anyway, the situation is serious enough for government to act. Next couple of months leading us into the Winter season shall be a testing ground for incumbent political elite, to manage the Latvian state running with the inreasing number of endogenous problems and exogenous challenges on the horizon.

Wednesday, August 15, 2007

Its houshold stupid...?

Ancient Greece gave us name for economics, whilst combining names oikos (house) and nomos (custom or law), hence "rules of the house(hold)." Latvian name tautsaimniecība ethimologically derives from the Greek economia, but it is applied not to the household but to "the rules of the running the nation (tauta -nation in Latvian)". This is a direct influence of the 19th century romantic national movements. The name itself seems harmless, but if one should define the rules of running the nation then one stumbles on problem defining what the nation really is? Anyhow, the name tautsaimniecība is not used thus often anymore and instead the name ekonomika is widely used today, and Latvian economic situation is in dire straits, so even the Latvian TV weekly "Kas notiek Latvijā?" show devoted its season's opening emission to the problems of Latvia's spiralling inflation. Referring to the title of this blog entry I purposfully paraphrased a phrase first used by the 1992 Bill Clinton election campaign stretegist James Carville. The reason why I paraphrased the omenous phrase is the ironic present situation in Latvia, when regardless of the economy out of balance the government is working only with half measures and does not comprehend serioussness of the present situation.

The show did not reveal anything new except the good hint by Mr Alfs Vanags. The state secretary from the Ministry of Finance, Mrs Irēna Krūmane declared that the Latvian executive honestly wishes to finish this years budget without a deficit. While bringing out the example of the governmnt's anti inflationary measures she confessed that the Ministry of Finance has cut basic expenses by some meagre Ls 10 million, and asked other ministries to follow her example. In the meantime, the numbers presented are ridiculously small, and usually for ministries to cut their expenses political will is needed, and here we must speak about the role of the PM again, which is questionable at most to be least ironic. That was the major reason, why Mr Alf Vanags hinted that the privatization of Lattelecom 30% or smth. state shares was performed in hurry for probably covering gaping hole of the 2007 budget deficit (on of the reprimands of the EU ECOFIN Commissioner Joaquin Almunia). It means that there is still no cutting of red tape and as far Latvian public administration is concerned it still stays underpaid, unreformed and struggling with the shortage of qualified workforce, unfortunately.

In the meantime The Post of Latvia Plc. is struggling. The trade union is negotiating the demand for doubling postmen salaries, but the PM has said that the government would not subsidise the fledling company, smth. good at least. Aivars Ozoliņš (columnist of the daily Diena) described the whole affair in today's issue ( ) and correctly concludes, that the management style of Latvian Transport Supremo, Mr Šlesers is questionable. Spending hundreds of thousands on the Postal News newspaper prior elections served the First Christian party well, they were elected and are part of the governing coalition today. However, I do not even touch the issue of morals here:). In the meantime the very bad sign is that the Post of Latvia has the monopoly rights to deliver the postal services in Latvia, and therefore, while simply closing deliveries to the unprofitable rural post offices the Post of Latvia endangers basic freedom of the press.

Delivery brunch of the Post of Latvia is constantly in red and instead of liberalizing this branch the government gave a green light this week for creation of the Postal Bank. Bizzare the inside deals in Post of Latvia are, and unfortunately they are performed by the self-proclaimed only liberal party in Latvian - LC/LPP (Latvian Way and First Christian Party union).

Actually the post-Soviet transformation still carries on in Latvia. Instead of creating another bicycle the executive could simply emulate the best governance practices from number of small states in the European Union (just like Estonia does it for example). Now, the biggest problem of Latvian political elite is the childish feeling that they can offer a better way of running pubic affairs than their West European competitors. Unfortunately the Soviet and materialistic (instead of post-materialistic to use the expresion from Bob Putnam) mindset is very much to be blamed here. Public officials while living in their bubble truly believe that other members of society are like them or simply stupid, unfortunately. Thus, their logic follows that the public service is the place for enriching oneself, thus making anyone in the public office to reap his/her personal benefits as quick as possible, and so making the public administration in Latvia to run excluively for short term goals. It means that anyone who wants to question public officials abilities and skills, must be blamed as disruptive elements, because they are afraid that their incumbent status, or their very livelihood, is under fire. Therfore, the culture of mediocrity is continued, and also the Latvian political elite runs this country exclusively for the short term goals/projects, be they the "Trīs Brāļi" conglomerate to build national libarary, concert hall and museum of modern art, upgrading of the RIX airport terminals, new building for the Internal revenue service or "mini-reform" of the education sector, unfortunately. Repeating office minuteae or simply number crunch is the usual way of business for technocrats, and technocrats are very much needed to run modern state administrations. However, when the future of the state is at stake Latvia also needs visionaries who could distinguish peanuts from the goose that lays golden eggs.

At the present moment the National Development Plan is there as a vision with the major goose at its center - the human development. Unfortunately, there is NOONE among Latvian governing coalition who has political will to start offering policies that would kick start mechanisms in order to achieve goals set up in this plan, and enrich all Latvian inhabitants instead o oligarchic cliques. Thus, the legitimate question is for how long the traditional short term rule by technocrats shall continue, and when/or at all Latvian households would wake up from the oblivion of the comsumer and morgage credit generated welfare dream?

Monday, August 13, 2007

Local municipalities and administrative reform in Latvia

The summer heat is at its equinox in the Baltic States these days with daily temperatures hoovering over +30C. Traditionally dormant vacation season is gradually coming to an end in Latvia due to its overheated economy. Fomer Minister of Finance and present Latvian MEP Valdis Dombrovskis (JL) admitted that Latvian economy is over - heated in his interview to the Latvian Public Radio this morning, concluding that governments anti-inflation plan does not function properly.

While Latvian economy must face new challenges Latvian liberal media has been focusing on disagreements within the governing Peoples Party (PP). Present Minister of Municipal affairs, Mr Aigars Štokenbergs caused controversy due to his open disagreement with the traditional governance style within the PP. Mr Štokenbergs openly announced that the secretive style of governance that is preferred by the founder of the PP, Andris Šķēle dissonates with the Latvian political achievements and challenges of the early 21th century. For today, at least openly diagreements between heavy weights within the PP calmed down, but the positive news is that the stagnant governance style within the PP is considered as a problem.

In the meantime the administrative reform of local municipalities after lengthy nine years is approaching its end, finally! While Estonian and Lithuanian administrative reforms of municipalities were performed swiftly during the 1990's it was Latvia that dragged on with the reforms a way too long. Political disagreements between the Latvian political parties were the major cause for the delay, but also the Council of Municipalities and particularly the role of its long standing head Mr Jaunsleinis is not without a blame either. Now, when Latvian municipalities are literally hemoreaghing empty either to Riga metropolitan area or straight to Ireland and the UK, politicians prabably realized that they are loosing their voters.

Today there are 527 local municipalities and that is a direct left-over from the centralized Soviet rule. The reason why the number of municipalities doubled after Soviet occupation during the 1940's was the CPSU's simultaneous wish to sovietize the Baltic republics and cleand countryside from partisans (so called Forest brothers). Therefore the Soviet leadership in Moscow inflated the number of local administrative units and implanted CPSU trusted members to administer them. Thus, Latvia lives with this Soviet heritage throughout the post-independence period with some municipalities having just over 1000 inhabitants. Such local municipalities (in unitary Latvian state they do not have tax authority rights) are neither able to upgrade their run-down infrastructure, access to the EU social cohesion funds, nor prevent entrepreneurial people for leaving for better grounds. The massive exodus of population from Latvian countryside started in the early 21st century, and there is still no offical data about the exact number that have left the country. Latvian embassies in Dublin and London estimate that there are about 35 000 Latvian citizens working in both countries respectively. Some unofficial figures run as high as estimating 120 000 Latvian citizens working in the Western Europe. Ironically none of the Latvian ministries monitored outpouring workforce because up to the very late the major problem was massive unemployment. Now, suddenly when borders with the rest of the EU economic space became open Latvian officials realized that they must brake out of the institutional path dependency syndrome, and face the real facts. And the real figures are freightening - the economy is out of balance, there is acute shortage of workforce and infation is spiralling.

In the middle of an economy galloping the end of administrative reform would cut the number of municipalities four times. Cutting the administrative expenses would allow to cut costs and balance the budget, and it is still not known whether there would be 88 or 127 municipal districts (novadi) in Latvia from February 2009, just prior the municipal elections in Latvia? Whatever the new number will be, it is good that the reform is finally approaching its end. The fact that government has listened reccommendations from the European Council of Regions and increased the number of the locally elected representatives is an encouraging sign as well.

For example, I can see it from the Salaspils municipality that in the town of 23 000 inhabitants we have just 13 members of the council, while in Estonia the Rae Municipalty (about 10 000 inhabitants) has 20 of them. The proportional number (having the number of representative proportional to the number of inhabitants not electors) of local representatives is important, because it would not allow former officials to form easy majority oligarchic cliques as it is for example in municipality of Salaspils. Just imagine that in the Salaspils council with thirteen members incumbent maire requires just seven members for a simple majority. In the situation with the local entrepreneurs being considerably small and thus local economy very much dependent on bread earners from from schools, kindergardens, municipal administration or other municipal utilities enterprises has created the circle of direct dependencies on the incumbent maire. In such situation mostly heads of such institutions are becoming members of the council, and they usually do not want to antagonize their relations with the incumbent rulers, because their welfare, or sometimes their very survival (in case they are approaching the pension age), depends on good relations with the head of local municipality. Such stagnant rule of local municipalities was carrying on throughout the post-independence perion in Latvia. Hopefully in September the government could finally put an end to the system that directly endorses depopulation of Latvia.

P.S. Those of you willing to read more about the rationale of the administrative reform could access 2007-2013 Latvian Development Plan webpage ( ), where you may find the downloadable (pdf) English version of it.

Saturday, August 11, 2007

Rising prices for the farm production

Germany is being shocked by the middle of the summer price hikes (averaging 15-50% increase) on basic food items, like bread and milk products ( The aftermath of those price hikes shall ripple through the rest of the EU soon after. Already the annual inflation rate in July in Latvia skyrocketed to the post independence high 9,5%. Latvian PM customarily expressed his disbelief in those numbers, whilst traditionally forgetting that he is the helmsman of the dilapidated Ms Latvia. Anti-inflationary measures that government in Latvia kept in secret and finally accepted came too late and they are half baked anyway. In Lithuania and Estonia inflation is raising as well, but the rates in LIT and EST (4,6% and 5,8% respectively) are half of those of Latvia. Mr Kokins from Parex bank reckons that there is a major cause for such disparity between the Baltic cousins. Namely, the overall price levels of the Latvian economy were half of those in Estonia and Lithuania (, therefore, while Baltic eonomies are converging with the rest of the EU it is Latvia who started with the lowest price level. Thus the gallopping economy in Latvia simply brings with it sharper price hikes that also influences higher price expectations of the population at large and adds to the spiralling of inflation. No wonder then, that Latvia was considered the poorest EU region before Romania and Bulgaria joined the club.

The economic news accross the Atlantic does not bring good news either. The US housing market unfortunately contaminates also the rest of the US economic health, thus it was reflected in the big slump of the New York stock exchange this Friday, that left a dominoe effect on other stock exchanges accross the industrially developed world. Here we may witness in practice, that whenever the US economy catches cold sneezes are felt in the rest of the world.

Housing markets are being scaled down in Scandinavian and Baltic countries, and with the hyper-liberal credit market of the 1990's being tightened up the consequences should be felt more harshly in the fragile (in comparison with mature Scandinavian ones) Baltic States economies. Latvia is the weakest link here, and while Estonian and Lithuanian governments are living for some years with budget surplus, it is the Latvian government now who learns, how to finally produce deficite less budget for the next fiscal year (2008). The task is formidable in the situation where postmen, doctors and teachers have promised to strike in case their employees would not satisfy their salary rise (to actualy double them) demands. In addition, Latvia, Lithuania and to the lesser extent also Estonia face gradual outpouring of their workforce. Germany's decision to lift the ban of the ten new EU members to work in Germany, while seeing its economy revitalized, only adds to the problems of the Baltic employees to find labour for MOST OF THE TASKS of their overheated economies.

The autumn usually sets in at the end of the August in the Baltic States, when parents must start preparing their offsprings for the new school year. Weather has been exceptionally good this Summer, and Latvian TV referring to the Financenet website ( reported yesterday that there was a record harvest of grain this year (1,5 mil. tonnes), althought the yield of Latvian fields is still miserble (2,9 tonnes from hectare). The record harvest, however, would not prevent Latvian consumers from seeing autumn price hikes of basic food stuffs. And the reason for that is not even traditional lack of professionalism of the Latvian government, but the benefits offered to Latvian farmers via the free trade regime and revolutionary events ading to the immense growth of the bio-fuels in energy sector. During the Cold War period millions of tonnes of basic foodstuffs were amassed in special storage facilities throughout the industrially developed cuntries. Now the storage facilities are empty, and, the reason for that is ever growing appetite of China & India, as well as, the growth of bio-fuel sector. Firstly, the growing apetite of China and India is reviving the farmig sector in the EU. The wholsale and retail giants like Aldi, Lidl and Carrefour dumped prices imbecilly low for most of the last three decades. Now the global trade with China has opened new opportunities for the EU agricultural producers when they finally get a market price for their produce. It means that old fashioned crisis of the 19th century might have a comback, when after a bad harvest there is simply scarcity of food. Just look out for floods in India, China and Indonesia and combine it with growing appetite of China's & India's rapidly growing middle class. Secondly, the rise of bio-fuel sector has been spectacular due to the constantly rising energy prices. Overall the bio-fuels comprise only 5% of the global energy supply, and the possible increase of the bio-fuel supply most directly shall affect the energy prices as well as traditionally low price of basic foodstuffs. Mexican tortilla riots are just the first signs of the discontent among underprivileged, and lets wait and see which country's underclass shall be next?

The price for a ton of wheat and rye in the Riga port shot up within a week (from Ls110 to Ls 140 per tonne). Overall it was the 75% increase as if to compare the price with the one last year. And its just before the new harvest is taken into barns. What should happen when the new tilling season shall arrive? Answer is very simple, basic foodstuffs are monetized and most of the Latvian next years harvests are already sold in advance, it means that there is no way to lower the price for food without government intervention, that depends very much on Brussels as well! The head of Latvian Bakers Association, Mr Valdis Circenis reckons that the price for a loaf of bread should double this fall, because spiralling inflation and energy prices doe not reflect the real price of the bread, and it stays so low due to the Baltic big retail chains competing in price dumping. However, already today the loaf of bread in Estonia is about 0,30EUR more expensive than in Latvia, thus an theoretical option for "carry bread" trade between the two countries. Add here the factor of converging open economies and you have an answer for the problem. Thus to sum up, global free trade regime, high energy prices, rising bio-fuel sector add to the gradual and unacustomed (in comparison with the Cold War period "stability") price hikes and might bring the traditional economic crisis (caused by bad harvests following environmental or natural disasters) back into agenda in disguised manner.

These are interesing times and offer plenty of opportunities for entrepreneurial spirits in the Baltic States and make the task of governments particularly challenging. Lets just squarely think about Latvian underprivileged 14o 997 official pension receivers in 2005 ( The average monthly pension today is about Ls130 (185EUR) and it makes the annual wellfare spending roughly 23o 400 000Ls, which is roughly 10% of the annual budget. If the price for basic foodstuff doubles in upcoming months it would mean that government must either increase pensions or lower the VAT for agricultural staples goods from 18 to 5%, or to synchronize both actions in order to allow underpriviledged to keep their ends meet.

Agricultural producers in the Baltic States states are witnessing a certain renessaince, and this opportunity should not be missed. In the meantime it might be sad if the production of agricultural products would simply follow the logics of building up the scale of the agribusiness sector without investing in the sustainable growth of the sector in the Baltic States. Sadly, but that would not imply the growth of the knowledge based economy. Lets wait for the autumn, and I am rather confident about the leadership in Estonia and Lithunia. However, lets see how well the incumbent PM steers the overheated Latvian economy in rougher seas of global economic tremors.

Tuesday, August 7, 2007

Rationale for the government reshuffle in Latvia

Rumours are whirling daily in Latvia about the possible government reshuffle. In the meantime one must not be the expert to understand that amidst the continuously rising inflation, outpuring workforce the sense of reality will have to set in prior cold weather arrives. From history we can learn that all significant crisis arived rather unexpetedly. The same is going on in Latvia today when at the peak of the holiday season experts and policy makers understand that Latvian economy faces structural problems and macroeconomic disbalances, but there is nothing to do about it, because it is the summer time. And in addition those are not experts or policy makers who are going to fel the brunt of the consequences of political and economic mismanagement, but the majority of population instead. The experts task is to warn, while the task of policy makers is to lead such policies that they would be reelected according to the rules of the representative democracy, and the only option left for the majority of eligible voters is to think, listen and vote/abstain.

First of all the legitimate question is whether government reshuffle is needed? Aye is my answer and there are three major reasons for that! First, the popularity ratings of the Latvijas Fakti & SKDS pollsters show that there re only very few out of almost dozen ministers who's job performance is considered positive. Second, the lastest Eurobarometer survey ( ) shows that the support of population for government, parliament and political parties is ever declining and is in the same league with Romania and Bulgaria and not with Estonia that is situated in a par with the Scandinavian average for example. Finally, the economy is still growing at double digit numbers but the low productivity and irresponsibly increasing salaries do not add to the real growth of the economy.

Therefore the government must keep these facts in mind if it wants to avoid eruption of angry crowds on streets, because the steadily raising prices for staple foodstuffs would become harsh in autumn, when the cold weather shall set in. Up to now postmen, doctors & nurses and teachers trade unions held negotiations with their partners, the state. All the trade unions have set goals on doubling their salaries, but in the meantime the Mr Kalvītis government has the task to forms the 2008 financial year deficit-less budget. Thus the task of the government amidst the trade union demands is titanic. Actually, it is possible to achieve the goal of deficite - less budget and to partially satisfy trade union demands only if the government overhauls its system of public administration. It would imply restructuring its public expences that would really need to start reform of education, welfare, police and medical care sectors. Here government shall most definitely face miriad of vested interests. Actually it is no wonder that among the most unpopular today in Latvia are ministers of Education and Welfare due to the very fact, that those sectors still represent the post Soviet heritage.

Therefore the decision of the Latvian Transport Minister to get access to the public funds in order to support fledling rural post offices is just a straw in the broader row of bargaining chips among the governing coalition. The coalition of TP, ZZS, TB/LNNK and LC/PP is cohesive, but the compromises that hold it together are becoming increasingly burdensome. Since sponsor of ZZS, Mr Aivrs Lembergs waits for his trial there are rumours about different reprimands of all coalition partners. How shall it all ends we shall see, and in the meantime the new president of Latvia shows signs of rapproachement with Russia while the Latvian constitutional court still has not convened and made decision about the constitutionality of the the Governments decision to sign the Latvian-Russian border treaty and parliament's decison to unilaterally ratify it.

Sunday, August 5, 2007

Familial contemplations in the early August

It has been more than week since I last updated my blog. Obviously it is the vacation time and the Summer holidays has left a definite imprint on the way of life of most of the Latvian inhabitants. It is a nice summer weather and many people are travelling to European cities and resorts these days. There are those who preferre to use their own car and then there is rather big number of people who use the services of the Riga International (RIX) airport. Due to several visits to the RIX lately I have witnessed negative developments in the airport departure zone. Namely the check-in system for the SAS& Air Baltic single queue in the RIX is a DISASTER! During the morning, noon and afternoon airport rush hours the single queue is unbearable. Airport management established automatic check-in mashines but I have never seen them actually working. In the meantime the queing travellers are made needlessly angry. It sems that Latvian Transport Supremo and his cronies in the RIX management board are either blind or careless? Anyway, in the situation when there are chronic labour shortages at the times of booming economy (circa 10% of GDP growth this year), and technological innovations are simply left neglected, it is not only ethically wrong, but it is also simultaneously impossible to open ever new destinations and to plan a major overhaul of the RIX departure terminal.

In the meantime there were rather many friends & acquintances visiting me in Latvia, and, I am still busy with preparing for the new academic year and sitting in the driving seat of my dissertation writing again, good!

My sister is visiting Salaspils with her husband and little Marta for their summer vacation. They arrived safely and we are having a jolly good time all together sharing memories or playing different table games during evenings. At the end of August also Bruno & Gunta Hirsch should arrive from Boston (MA), thus the family gathering this year would be memorable indeed!

This Tuesday Mrs Inga Skrūzmane was celebrating her birthday in the Blondie bar in Riga. Mrs Skrūzmane came home from Tashkent (Uzbekistan) for the summer holidays and her party was both jovial and omenous for me due to meeting a very special person there. Since the last March, when I visited Tashkent, I had not heard anything from Her. She arrived at the Inga's birthday party straight from Istanbul and the following days, among many other things, were spent in rich discussions and warm reflections. Visiting the beach in Vitrupe was the first visit of the beach this year. It was eventful and seeing former and present students at the Maurīcijs night club yesterday night was a nice reminder about the significance of the Summer season as well. Thus, to conclude the first week of the August 2007 one issue is rock bottom sure - there are definitely terminal changes in the air for me. The reflections and rich discussions allowed me to have answers to long awaited questions and enabled me to see the light at the end of the tunnel!

P.S. Politics in Latvia is customarily summerly, and the predicted reshuffle of the government is rumoured more and more noisily in the Latvian media. Latvian incumbent PM swore that there is NO reshuffle of the present government envisaged, and as a major reason for that he mentioned that all the ministers are busy preparing the deficite less 2008 financial year budget..oh, la, la la & GOOD LUCK PM! Nevertheless, the public opinion has long lost trust in Mr Aigars Kalvītis (just remember how fans where whistling before the official ceremony of the opening of the friendly Latvian-Lithuanian basketball match...), and it seems that we are definitely going to see cosmetic changes in the Latvian government even before the start of a new school year.