Tuesday, March 31, 2009

Latvian parliament stays on

President Valdis Zatlers spoke to the Latvian nation but failed to dismiss the Saeima (parliament) as he threatened to do unless legislation changing the constitution to allow dissolving the Saeima at the voters' initiative  and other legislation was passed by March 31.
Zatlers gave the "ultimatum" to the  100-member parliament on January 14, the day after a peaceful anti-government rally was followed by rioting. 
The president listed a series of measures taken by the Saeima hitherto that, as I read it, basically said that doing a two-thirds-assed (as opposed to half-assed) job was enough, together with the new government of fall-guy Valdis Dombrovskis, the economic crisis, the talks with the IMF, blah blah - was reason to give the Saeima another chance.
The reaction in internet comments has been pretty harsh. Many are calling Zatlers a wimp. 
My take -- dismissing the Saeima would have merely paved the way for a Chinese-fire-drill-at-monkey house style election. The People's Party (Tautas Partija) would probably have taken a bad hit, but populists, crazies and the politically inexperienced would probably have been elected in a hasty and desperate campaign, left with a nearly impossible task of forming a viable government.
At the same time, it is obvious that no election can prevent Latvia's rapid slide toward economic collapse and state bankruptcy.

Sunday, March 29, 2009

Some positive angles possible?

So is there a way out of the present crisis in Latvia? The question came up at a reunion of sorts of the people who used to work for the Latvian Service of Radio Sweden. It has been 20 years since broadcasts in the Baltic languages were started, but they were discontinued a few years ago. The Baltic drama, as far as the Swedes were concerned, was over.
Actually, the seeds of another drama were being sowed in the 2004 to 2007 period -- a credit-fueled boom, the highest growth rate in the EU, salaries vastly outrunning productivity, astronomical real-estate prices. It was for my descriptions of the subsequent economic crisis in this blog that I got drawn into a rather intense discussion about why I was not “positive” about something.
Superficially, the discussion seemed to follow the same pattern as a panel discussion in Riga where I ended up against Eriks Stendzenieks, whose ad agency was hired to conduct a “positiveness” campaign ahead of the 2006 elections to the Saeima in Latvia and Viesturs Dule, an former TV entertainer turned media critic. However, my critic and opponent wasn’t a PR/media professional, but someone I have known in the Latvian community outside of Latvia for decades. She worked as a freelance contributor to the Latvian Service after I left in 1995 and moved (more or less) to Latvia.
As I said during the discussions in Latvia, the job of a journalist (and, by extension, of a blogger) is to present facts accurately. In blog it is not only permissible, but desirable to have a point of view, to exhibit attitude or opinion. But even that must be derived from the facts.
Anyway -- are there hard facts or statistics that indicate Latvia will avoid an economic collapse in a few months? Presently, not; things look pretty bad. Retail sales are seen plunging up to 30 %, foreign trade volume is down, unemployment rising rapidly and the number of job vacancies collapsing (this is not a creative destruction scenario where there is a lag between the “sunset” of one industrial sector and the creation of a new one).
OK, if I can’t be of a different mind based on present facts and figure, perhaps there are other ways to seek solace and to at least attempt to dodge the charges of doom-mongering that I heard the other night from my opponent in the informal discussion.
Perhaps one can turn to history. Hundreds of thousands of Latvians fled deep inside Russia during World War I, fearing the invading Germans. There was considerable war damage to Latvia’s infrastructiure and a large part of industry, linked to the Russian Empire, never recovered after the war. Nonetheless, the newly-founded country got back on its feet. Much of the recovery was driven by patriotism and the exhileration of building a new country.
Still further back in history, there were several times of devastating war and plague, all of which the Latvian nation somehow survived.
One could object that the period of post-1991 independence was followed by an incredible spectacle of corruption and incompetence, but certainly nothing that had not been seen and, in many cases, overcome in other times and places. So we can derive some hope or odds (in a probability sense) from this.
Another possibility is that predictions of a mass labor exodus as soon as Europe recovers could be exaggerated. A recent survey published in Diena, the Latvian national daily, found that 56.8 % of those questioned said they would not emigrate and 22.8 % said they had not thought of it, but might consider it. Only 3.9 % said they would definitely leave.
This poll addresses the issue raised by economist/blogger Edward Hugh, who foresees a worst-case scenario in which Europe recovers first and drains Latvia of skilled labor, leaving a nation of a shrinking second-rate workforce and a rising number of pensioners and other “consumers” of the social budget. That would leave Latvia as a stagnating backwater on the northeastern edge of Europe. Maybe it won’t happen.
It also cannot be excluded that another spontaneous mass movement, like the so-called Awakening of the late 1980s appears. There has been a false dawn in the so-called Umbrella Movement (after a antii-government rally in Riga in December, 2008 that took place in a rain and snow storm) and the so-called Penguin Movement is still to small to be considered a serious force. Nonetheless, nothing can be excluded, although future mass rallies are likely to be tainted with violence (after January 13). Still, the chance of a mass protest movement tinged with a threat of violence accomplishing some kind of political change can’t be excluded.
Yet another possibility is that the government of Valdis Dombrovskis regains the trust of the public and is able to enjoy genuine support. Certainly, Dombrovskis himself has a clean, if relatively short political record in Latvia. Maybe the population somehow suffers through the austerity without losing trust in the state. Sometimes miracles happen.

Saturday, March 28, 2009

More than coincidence -- and a no-future scenario?

Recently I participated in public panel discussion of Latvia's international image, certainly the focus of bad news (see BBC's Newsnight series on collapsing Eastern Europe). When it ended, the person sitting next to me, a Latvian academic married to a foreigner, announced that she was moving to her husband's European home country. "I have two children," she said, adding that her doctoral studies in the other country would be less expensive than in Latvia.
Today flying to Stockholm, I stood near two Latvian women and a little girl (the younger woman's child) waiting to board my Ryanair flight. We got to talking, and it turns out they were both leaving to work as caregivers for triplets born to a Swiss woman running a hotel in Grenoble. The somewhat older women ended up sitting next to me on the plane and told me she had lived and worked in the US for seven years, then come back to Latvia in 2006. 
"I discovered no one needs me and my excellent English or any other skills," she said of her decision to move away from Latvia. 
Is this all coincidence or are more and more educated, skilled people leaving despite high unemployment in other European countries? We shall see.
One thing is clear -- if you have kids in the Latvian public education system, it is now time to consider private school  if you can afford it, or to emigrate. With the budget cuts proposed for education (both elementary, secondary and higher), it is likely that the quality of education will plummet based on attrition of teachers. It is not outrageous to say that public education in the country will start to disintegrate over the next two years.
At the same time, wage cuts of up to 40 % for the police mean there will be a severe decline in public security, a rise in bribe-taking opportunities and probable attrition of the police force to levels where it will barely be able to investigate crimes and keep public order.
All of this could have been mitigated by different, more cautious economic policies in the past three years. These opportunities were missed by previous governments, and there is nothing the present government can do to undo these mistakes. The government of Valdis Dombrovskis will preside, in all likelihood, over the nearly complete collapse of the Latvian economy.

Friday, March 27, 2009

Clinical death, devaluation rumors and stimulus

Latvia's Minister of Economics Artis Kampars (New Era/Jaunais Laiks/JL) has declared the Latvian economy clinically dead in a newspaper interview.
The new minister said that the present government under Prime Minister Valdis Dombrovskis (also JL) could not be blamed for the situation it inherited.
I have written previously that Dombrovskis is very clearly a "fall guy". By his remarks, Kampars has confirmed that the economy has collapsed/will continue to collapse on his watch. It doesn't mitigate things to say that JL warned of the impending economic crisis. The party decided to take the wheel of the state when it was well beyond any braking distance from the edge of the cliff.
Meanwhile, the PM has stirred new devaluation rumors by saying that the international lenders were divided on whether Latvia's strong lat should be decoupled from the euro. He said that the International Monetary Fund (IMF) didn't object to devaluation, but accepted that Latvia didn't intend to devalue. Meanwhile Dombrovskis indicated that the European Union (EU), also a major lender, didn't think devaluation was a good idea.
Bank of Latvia President Ilmārs Rimšēvics has urged the government to stimulate the economy. One wonders with what? Kampars said that while bureaucratic procedures to use EU and government money for improving the insulation of residences would take a long while, he expected some activity in this area in the summer (before funds are available?). Well, we will see who is running around with rolls of insulating material in June...
Rimšēvics also thinks that Latvia will be eligible to join the euro zone in 2012. It might just meet some of the inflation criteria (but don't count on it), but certainly not the national debt requirements. Think 2020 if we are lucky.
I say: worst case scenario devaluation by June (fuck you very much, Latvian Security Police), 20% unemployment soon, massive labor emigration by spring 2010 if Europe starts turning around. The first to go to well-paid cleaning jobs will be Latvia's teachers. Watch for a collapse of the education system in 2010 and 2011 as opportunities appear to GTFOFL*.

*get the fuck out of Latvia, what did you think?

Wednesday, March 25, 2009

Little hope to bend the IMF

Although Finance Minister Einārs Repše has spoken of a successful start to Latvia's talks with a delegation from the International Monetary Fund (IMF), these talks will mainly focus on technical matters, agreement on accounting procedures and budget methodologies. It is difficult to imagine that there would be any serious problems with agreement on "how to count the beans".
The fundamental problem is "do we get any more beans" and that depends on cutting the budget deficit to 5 % of GDP, not the 7 % that the Latvian government thinks it can cajole from the IMF. Whatever sympathies the IMF may feel for Latvia's situation (harsh public sector wage cuts of 20 % or even more), the international agency basically has its hands tied by a number of factors. One is that other East European countries (Romania is the latest) may be seeking loans, and easing Latvia's terms would set a bad precedent. The precedent could also carry over into other countries outside of Europe. Unfair though it is, the IMF is unlikely to accept the argument that other, bigger European countries are pushing the envelope beyond the 5 % limit, nevermind the US.
So it appears that Latvia's budget cuts fall far short of what the IMF demands in order to continue paying out its line of credit to Latvia, and the government will have to cut spending to beyond the bone or risk government insolvency by the summer. Those deeper cuts may well have close to the same effect as insolvency, as public services could be reduced to the point of collapse at the same time as pensions may be reduced, something that could be the last straw before new social disorders (taking to the streets by the unemployed or by youths tossing paving stones on behalf of their grandparents).
One knowledgeable source I encountered by chance recently  says that the IMF might cut a deal with the Latvian government in return for a devaluation of the lat, something the IMF brought up in its initial talks with Latvia late last year, but which the government rejected and its position was respected by the IMF. However, being allowed to boost the budget deficit to, say 6 % of GDP in return for letting the lat float in a 15 % range from its current peg wouldn't solve very much. The thousands of mortgage paying (in EUR) public employees would, in addition to their 20 % pay cut, see a rise of as much as 15 % in their monthly payments. Eventually, the devaluation would also boost input prices for domestic goods (energy, raw materials) and sharply increase the price of imports, including many essentials (wintertime fruits and vegetables) for which there is no domestic substitute, not to mention fuel prices.
Faced with these two impossible choices, Prime Minister Valdis Dombrovskis, in my mind, still stands as " the fall guy" for the previous (mis)governments. Perhaps this is meant as a final death stab to the reformist New Era (Jaunais Laiks) party, which had already done a fairly good job of slouching toward its own grave after splitting and losing some of its people to the new Civil Union (Pilsoniskā Savienība). The reason for this --bizarre and irrational as it may seem -- is to protect, at almost any price,  the current ruling elite (elites?) from serious challenge by a political force that at least to a large extent believes in clean, efficient governance.

Sunday, March 22, 2009

Can Latvia's "golden age" be repeated?

There is an interesting blog post by a former commentator for the daily Diena, currently an economic analyst with Swedbank, Pēteris Strautiņš. He says that Latvia's post independence "golden years" were 2000 to 2004, when the country experienced balanced GDP growth of 6 - 8%, including steady growth of manufacturing. The post, in Latvian, can be read here.
The trouble, Strautiņš writes, started in 2005 as manufacturing growth stagnated and continued in 2006 and 2007, as the credit-fed boom took off (with double-digit growth). The Swedbank analyst believes there is a chance to restore balance and go back to the kind of economic growth seen in the "golden years".
Against this view stands the prediction by economics blogger Edward Hugh that Latvia could (will?) face a worst-case scenario where the economies of Europe undergo a "V" shaped recession (sharp drop, short time at the bottom, sharp rise), but Latvia goes into a "U" shaped recession. What this means is that Latvia experiences a sharp drop, stays "down" for a time, and then picks up again. But with much of the rest of the EU ahead of Latvia, the earlier recovery there will simply siphon off migrant workers from Latvia and the other "late recovery" economies.
To be sure, there will be harsh competition for these jobs, but Latvian migrants have a generally good reputation in places such as Ireland and the UK, perhaps Germany. So as Europe recovers and Latvia stagnates, as many as several tens of thousands of younger, educated or otherwise skilled workers could leave the country.
Experience hitherto shows that there are little or no incentives for Latvians in the  so-called "second emigration" to return. The "first emigration" -- my parents' generation, fled from the Soviet occupation. Their goal was to restore an independent Latvia. Emigration 2.0 are people -- I believe-- choosing not only higher wages and better economic conditions, but also better governance in their adopted countries and workplaces.  A significant signal was that even in 2006, as the boom in Latvia was taking off, only a few hundred of the tens of thousands of Latvians in Ireland (also then a booming economy) voted in the Latvian national elections. These people had turned their backs on Latvia as a political entity. Economically, they repatriated (and still repatriate) lots of money, and with Ryanair, are able to maintain family and essential social contacts with Latvia, but they have given up on being fully/politically part of Latvian society. 
If Edward Hugh's scenario plays out, then the number of emigration 2.0 Latvians will increase, the number of potential taxpayers in Latvia will fall, and the  "U" shaped recession could turn into an "L" shaped indefinite stagnation with a dwindling and less productive (the most productive having emigrated) labor force supporting an increasing number of "transfer consumers" (pensioners, the sick, children, the disabled and permanently unemployed). 
Maybe Strautiņš is right. But the second "golden age" may only come sometime in the mid-2010s, which is too late for anyone who sees quicker opportunities elsewhere and, like very many Latvians, deeply mistrusts the "system" in this country. That mistrust (a rational and experience based mistrust, I might add) is probably the most lethal of "poisons" circulating in the national bloodstream. 
I am of an age where recovery in 2015 or 2018 will technically have me out of the labor force. But people who are younger, in their 40s,  could hang on but for what amounts to the plundering of their future pensions by the present government, which has cut drastically contributions to the so-called second level pension funds. It is easy to calculate that this generation will have much lower pensions, so why not switch to a system that is more reliable-- Ireland, Sweden, take your pick. Also, there have been proposals to force these pension funds to invest in Latvia only, therefore depriving the fund beneficiaries of better returns on their pension capital in other markets and countries.
Yet another signal to thousands of Latvians that it is time to pack up and leave. 

Friday, March 20, 2009

Blaming the media for the facts

Latvia is spiraling downwards. The government thinks GDP will fall over 12 % this year. Swedbank is said to forecast a 15 % drop. There are no signs that the International Monetary Fund (IMF) or the European Union (EU) will accept the government's proposal to allow a budget deficit larger than the one specified in the agreement with the IMF. That means cutting not 280 million LVL from the budget, but 700 million LVL. That, in turn, means cutting social services and other essentials, probably even reducing pensions. That, in turn, may lead to social unrest.
That is the situation now. In the future, it may be even worse. If Latvia fails to get additional foreign funding, it will essentially go bankrupt by the summer. There are few facts or economic indicators that speak against this.
However, it now seems that to tell things as they are is the real cause of the crisis in Latvia. Not the incompetence of previous governments (both here and in other countries, to be sure), not the failure to heed expert warnings. The crisis is caused by the media.
This was an opinion expressed by two PR and media relations people at a discussion recently  hosted by the Latvian Institute on the topic "What do you say when there is nothing to say".  It was a difficult topic, because from a journalist's viewpoint, there is something to say -- the facts (and what reputable sources say about them). From the PR standpoint, the view was that one had to say happy things, because saying depressing things was a sign of poor self-esteem and harmful to the country and its image.
Self-esteem is a good thing, but it was not the lack of self-esteem or lack of  national pride that caused massive overborrowing. It was shortsighted arrogance that caused the government to adopt a "pedal to the metal" attitude on a burst of economic growth that was fueled largely by credit and a wild real-estate boom. These conclusions can be backed by facts and figures. Latvia's spiking inflation rate for part of last year was caused by the huge amount of credit-generated money in the economy outrunning the supply of goods, services and real property (so that prices rises would always be met by borrowed cash able to pay for them).
There are examples of success and competence in Latvia and I mentioned this in the panel discussion. I spoke of TiVi, the Latvian IP telephony and video streaming solutions company, about Sidrabe, the high tech surface coating technologies company. And I did not deny that Latvians were generally competent and intelligent people, as witnessed by the successes abroad (in Ireland and other countries where they have gone as labor migrants). Latvia's problem (one of its problems) has been corrupt and incompetent leadership, and the mission of journalist is to find and publish facts that expose this and other problems (and to speak of accomplishments, as well). 
Now, as municipal elections approach in the middle of an economic crisis, the happy news spinners have started working again. Fine, it is their job. The media's job is different. Whether it is too late to change anything is still, maybe, an open question, although I think the chances are slim. 

Wednesday, March 18, 2009

Billions in debt service well into the 2010s?

If anyone has any illusions about a recovery of the Latvian economy in the foreseeable future,  they should check out some figures obtained from the State Treasury (Valsts Kase) by a researcher for the popular TV discussion show Kas notiek Latvijā? (What is happening in Latvia?). The Latvian version is here
Without getting into a whole muddle of numbers, by 2014, even based on current state borrowing (and, as I understand it, excluding the 7.5 billion EUR the government has obtained from the IMF and the EU), Latvia will be paying at least 1 billion LVL per annum in credit servicing (interest and repayment of principle) costs. Adding in the foreign credits, these payments will be almost 10 billion LVL up to and including 2020.
With economic growth stagnating for any number of reasons -- higher taxes, poor productivity, corruption, confused and clueless policies -- the debt load will probably prevent Latvia from joining the euro zone (you must have government debt below 50 % of GDP) in the foreseeable future. At some point, too, the lat will have to be decoupled from its 1 % corridor against the euro. although with such a huge euro debt, a devaluation will have an even more devastating effect on the ability of the country to repay its international borrowing (as well as on all domestic and household borrowing in EUR).
Add to this the fact that it appears Latvia will not even get its next payment from international lenders, since the new Dombrovskis government has agreed to only less than 300 million LVL of the 700 million LVL budget cuts required by the lenders as a precondition to continued payouts. It is very unlikely that the EU and IMF will cut Latvia any slack on this, and the 700 million cut will probably end up reducing public services below some critical minimum. That is not to say that Latvian government could not be run much, much more efficiently, but there has been too little effort (none practically) to think in terms of smart government and of a very careful prioritizing of cost cuts.
Quite the opposite-- a recent story  (in Latvian) on the State Audit examination of the huge cost overruns on the so-called Southern Bridge in Riga, boosting its cost from an initial just over 108 million LVL to 570 million LVL. That is the kind of money that India is spending on its next Vikrant class aircraft carrier. Of this cost to the municipality of Riga, 264 million lats (or some 0.87 santims for every lat spend on actually building the bridge) constitute debt service (cost of borrowing). Indeed, the entire project is one gigantic clusterfuck of cost overruns and waste probably repeated on a smaller scale in the way other municipalities and government institutions do business. Indeed, one figure of 27 million LVL pissed away by the idiot city fathers amounts to the money scraped together recently for support to dairy farmers. This bridge boondoggle will also have to be paid off, along with the debt servicing mentioned above.
The bridge story fits in well here, because it is a story of how money is misspent through Latvia's third-world rathole level of corruption, incompetence and idiocy in government. The idea of lending Latvia some 7.5 billion EUR is that it will keep the institutions of governance funded so that the economy can start recovery (maybe not even drawing down the credit line in full).  However, 7.5 billion is also the largest embezzlement, waste and corrupt diversion of funds opportunity ever presented to Latvia's ruling elite. Looking at how this country builds bridges for the price of an aircraft carrier, and how it wasted the so-called G-24 loan of a few tens of millions, of how it cluelessly beggared itself rather than saving its tax surpluses as warnings of an economic downturn multiplied, it is likely--bordering on certain-- that the EU and IMF funds will also be wasted and decimated by corruption and mismanagement.

Saturday, March 14, 2009

New crew on the bridge of the Titanic

The government put together by Valdis Dombrovskis of the New Era (Jaunais Laiks/JL) has been affirmed by a large majority of the Saeima (parliament). It has published a declaration of policy that can only be described as a long list of largely commendable and reasonable tasks, for which no funding exists. Indeed, the fatal error of the present government is that it has proposed (including a 20 % pay cut for all public employees except in health care) budget reductions that fall far short of the 700 million LVL that must be reduced in order to narrow the budget deficit to the limits required by the International Monetary Fund (IMF) and the European Commission. Hopes of negotiating an exception are illusory -- the wealthier and older EU member states are already spooked by the possible bill for the present stage of bailing out Eastern Europe (see a recent issue of The Economist with a cover story on this).
Unfortunately, the Dombrovskis government is but a crew change on the bridge of the sharply listing Titanic. If the full 700 million LVL cuts are made, public services as presently organized and delivered in Latvia (efficiency and productivity, of course, have been alien concepts) will disintegrate. There will be strikes by schoolteachers as well as labor market actions by police. If Edward Hugh's prediction of a V-shaped recession for "Old Europe" and a U-shaped recession for Latvia comes true, it means that as soon as recovery starts in Western Europe,  labor emigration will pick up. Teachers and police whose standard of living was drastically reduced will seek unskilled and semi-skilled work abroad, because the pay will significantly exceed anything they can hope to make in Latvia.
However, before that happens, there will probably be significant social unrest and disintegration -- more street disorders -- police trying to control mobs of  "there but for luck, go I" unemployed and desperate demonstrators and rioters, increased street crime and massive "economic crime" as entrepreneurs simply drop out of the "legitimate" economy and pay their remaining productive employees in envelopes.
None of this can be avoided because it is the result of governments prior to Dombrovskis'  merrily crashing into the iceberg and fatally damaging the Latvian ship of state and society. This government, it almost seems, was lured into being at the helm for the final stage of the sinking. Historians will blame earlier governments, to be sure, but the record will show that when the Latvian state was bankrupted, when the lat had to finally be devalued, and when unemployment (later emigration) soared into double-digit amounts, it was Valdis Dombrovskis and his team who were formally in charge. 

Sunday, March 08, 2009

Losing millions, but keeping faith in NGOs?

This is just a brief note about a talk on the European Movement in Latvia, an NGO (Non-Governmental Organization). Andris Gobiņš, the young, German-born Latvian head of the organization (therefore also a former exile community member) mentioned how several million (EUR or LVL) in European Union (EU) funds had been blocked or hindered from distribution in Latvia. It seems that the Latvian authorities told applicants that they could not request or spend money for accounting and administrative costs related to any EU funds they would get.
This, it turned out, was untrue, as Gobiņš found out simply by calling the appropriate EU officials in Brussels. This means that Latvian officials in charge of EU funds distribution and/or informing applicants were either ignorant or willfully lying. The liar and/or ignorant moron was a named official of the Latvian Ministry of Economics.
This, it seems, is typical of the way things are done almost 18 years after this country regained its independence. Many of those seeking to improve their business conditions or lives with EU funding lack the language skills and self-confidence to pick up the phone to Brussels (even though there are hundreds of Latvians there, working for European institutions and most not in collusion with corrupt, ignorant or lying Latvian government officials). Good that Gobiņš found out the truth on at least one issue.
However, this really doesn't change the overall picture of a state apparatus(that which persists when governments change) and a series of governments that have been overeager to adapt, apply and even invent EU rules and standards, then to be ignorant (out of incompetance or corruption) of what the EU really wants. This is just one example.
Both Gobiņš and Rasma Kārkliņa (a German-Latvian political scientist who spent a long time in the US) believe that the increasing activity of NGOs is a good sign. Kārkliņa published an article in the daily Diena and its website to this effect. Certainly, there is some support in statistics over the past few years for this assumption. But I don't believe that the political elite, which has been little influenced by the activities of society over the past 17 years, is going to suddenly change, get smarter, stop lying.
As I said during the discussion following Gobinš informal talk, the only thing that briefly gets the attention of Latvian politicians is a paving stone breaking a window. Not a way to effect real change considering the historical evidence of unintended and disastrous consequences for riots, uprisings (remember 1905) and revolutions. 
Unfortunately, it appears that more street disorders are inevitable as the warm weather approaches and the country spirals down toward state bankruptcy and societal cluelessness despite the uptick in NGO activities.

Thursday, March 05, 2009

Patching together a government drags on

The formation of a new government under Valdis Dombrovskis (New Era/Jaunais Laiks) is being dragged out by political horse-trading even as the Prime Minister designate's own deadline for state bankruptcy (April or a little later) draws closer.
Until a viable or semi-viable coalition is formed, it is unlikely that the parliament (Saeima) will take any action on further budget cuts. The International Monetary Fund (IMF) cannot negotiate with anyone until a government is in place even if it was ready to change its terms of lending to Latvia (It has  been suggested that a larger budget deficit could be allowed to reduce the impact of further spending cuts on employment, etc.)
What is happening, however, is not surprising. The country and the political culture (post-1991) have no sense of solidarity in a crisis, politics "as usual" can continue no matter what is going on in the economy. Indeed, last-minute questionable deals can be signed by the outgoing government to build out Riga Airport with a Turkish company that has never worked in the European Union (EU). This is not to say that Turkish firms don't have a good reputation in areas such as heavy construction. It is simply that some of the other companies in the tender apparently were not convinced that the expansion of the airport should be as fast as the outgoing Minister of Transport  Ainārs Šlesers envisions it.  Some of them appear to have included this professional advice in their bid -- in other words, willing to do the job on realistic terms and not allow the customer to overspend and overdevelop.
It now appears that if and when a new government is patched together, it will likely carry on the earlier coalition traditions of somehow cluelessly muddling along (or earlier racing with the pedal to the floor, but not this time around) and trying to keep itself from falling apart by balancing party interests that may have little or nothing to do with a national interest. In fact, it seems that this concept, except as political rhetoric, doesn't really exist in Latvia and probably won't for the foreseeable future.