Political uncertainty and economic recession

Latvian Institute of International Affairs
At the beginning of 2009 Latvia is facing political uncertainty and the onset of what is likely to be deep economic recession. Public discourse tends to concentrate on those two general themes.
The current political uncertainty is closely linked with that fact that the national government as well as the parliament and political parties no longer enjoy the public’s confidence. According to an opinion poll, published in late January 2009, 64 percent of Latvia’s citizens would favour dissolving the parliament.[1] Another public opinion poll in December 2008, reveals that 51 percent of the people were totally dissatisfied with the performance of the government and only 10 percent said that they were satisfied.[2]
This is the lowest rating of any government since 1996 when thousands of Latvians lost their life’s savings owing to the folding of “Banka Baltija”.
Public confidence – while never particularly high – in elected representatives, officials and political parties, especially at the national level in Latvia, started to erode steadily about a year after the parliamentary elections of October 2006. The People’s Party[3] won the greatest number of seats and formed a coalition with other right-of-centre parties, except the New Era.[4] Owing to strict discipline, the coalition could decide any issue before the parliament. The coalition’s disregard for the views of the political opposition and proverbial man in the street, elicited complaints from the electorate of a dictatorship of the majority in the parliament and public petitions in spring 2008 to change the constitution so as to permit the electorate to initiate the dissolution of the parliament.
Aigars Kalvītis (People’s Party), who had been a very self-confident Prime Minister from 2004 to 2006, was asked again to form the new government in autumn 2006 after the parliamentary elections. In his second tenure as Prime Minister, he was noted for his arrogance and high-handedness; his government – for being deaf to the voice of the electorate. Owing to widespread public complaints, Kalvītis resigned in December 2007. He managed, nonetheless, to ensure that the reins of power remain in the hands of the existing ruling coalition. Ivars Godmanis of Latvia’s Way-Latvia’s First Party[5] became the next Prime Minister. Party politics determined the choice of ministers in the cabinet rather than professional competence and good reputation as a public servant. This was demonstrated by the government’s inability to act promptly to reduce the risks of an overheated economy – these dangers were already perceptible during the years before Godmanis became Prime Minister. Not having the full backing of his government, Godmanis was not able to implement the hard decisions, which in his opinion were necessary to try to stabilise Latvia’s economy.
Early in November 2008 it became public knowledge that “Parex Bank”, Latvia’s second largest bank, was unable to meet the payment schedule on the syndicated loans that it had taken. The government’s decision to bail out the bank revealed the precarious state of Latvia’s economy as a whole. Latvia did not have the resources for the bailout and needed outside financial assistance.

This news further undermined public confidence in the government and the parliament and served to encourage more demonstrations by farmers and other groups encountering economic difficulties. A large demonstration demanding change, including the dissolution of the parliament, was announced for 13 January 2009. The organisers were political opponents of the ruling coalition. Despite the freezing temperatures many thousands of people gathered in the historic centre of Rīga and peacefully voiced their complaints and demands. Just as the demonstration was ending, groups of mostly inebriated young people headed for the parliament and tried to storm the building. Failing to succeed, they turned to other violent activities, reminiscent of the riots in other European capitals in recent years. The Latvian public was shocked and could not believe that this could happen in Rīga. The government and the ruling coalition in the parliament reacted by ignoring the grievances of the demonstrators and by deploring the disorders and casting the blame on the organisers of the demonstration.
President Zatlers reacted on 14 January 2009 by accusing the government and the parliament of losing sight of the people and asked deputies to revise the law on parliamentary elections, voting on amendments to the constitution allowing the voters to initiate the dissolution of the parliament, and establishing a council to monitor the spending of the loans from abroad and the implementation of the plan to stabilise the economy. He asked that these tasks be completed by the end of March, otherwise he could consider dismissing the parliament so as to permit new elections.[6] After complaining loudly about the President’s ultimatum, the parliament has been attending to the three tasks.
In the meanwhile, discord among the politicians of the ruling coalition was growing, especially over the suitability of Godmanis as the Prime Minister. Discontent had also been expressed by the President. Finally on 20 February 2009 the People’s Party and the Green[7] and Farmers’ Party[8] decided to call for the resignation of the Prime Minister; later that day, the Prime Minister Godmanis stepped down. President Zatlers has asked Valdis Dombrovskis of the opposition right-of-centre New Era Party to form a new government.
The most urgent tasks of the new government will be to ward off the threat of bankruptcy and to regain public confidence in the government. Toward these ends the new ministers will have to listen closely to the electorate and make the decisions that are best for the country. Regarding the economy, the new government will have to show that Latvia is meeting the conditions for receiving the promised loan of 7.5 billion Euro from the International Monetary Fund. This will entail drafting a viable programme to stabilise the economy and adopting promptly very unpopular measures, such as cutting the budget by at least 20 percent, so as to ward off the threat of bankruptcy. The deadline is the end of March. The implementation of these steps will also ensure the smooth allocation of the promised assistance from the European Commission, to be distributed in parcels in the years from 2009 to starting with 2.9 billion Euro in the first years and followed by 100 million Euro in 2010 and 2011.[9]

[1] BNS, news agency: dispatch of 24 January 2009.

[2] LETA, news agency: dispatch of 3 February 2009.

[3] Tautas Partija.

[4] Jaunis laiks.

[5] Latvijas Ceļš.

[6] Delfi, news agency: dispatch of 14 January 2009.

[7] Latvijas Zaļā Partija.

[8] Centriskā partija Latvija Zemnieku Savienība.

[9] LETA, news agency: dispatch of 30 January 2009.