A week or summer of unrest ahead?

This week, Latvia's parliament, the Saeima, will vote on approving the drastic LVL 500 million (USD 1 billion) budget cuts for 2009, that be followed by equal if not harsher cuts for 2010 and following years. Parliament will apparently be in session Monday, June 15 to conduct regular business and will resume an emergency session on June 16 to deal with the budget matters. The final vote may take place on June 17, a historically dark day when Soviet forces moved in to occupy Latvia in 1940. Just coincidence, but somehow ominous.

The budget cuts will go across the board, slashing government salaries by another 20 %, as well as reducing pensions by 10 %, but slashing the pensions of those still hold jobs (mainly out of economic necessity or because they enjoy their work and are able to do it) by 70 %. The proposed progressive income tax will not be implemented this year. One of drafts that popped up during a hectic and confusing Cabinet of Ministers meeting proposed starting the scale of higher (marginal?) tax rates at LVL 300 per month. This caused an uproar.

In short, the austerity package will have a massive direct and indirect impact on living standards and it is no surprise that the Free Trade Union Federation of Latvia has called for protest rallies in Riga and several other Latvian cities on June 18. It could be the largest public gathering since the pro-independence demonstrations of the late 1980s, where up to 250 000 people rallied on the 11th November Shoreline (11. novembra krastmala -- named differently back then?), a section of roadway between Riga's Old Town and the Daugava river. It will also have a considerable potential for degenerating into unrest, as happened with a political rally on January 13.

My prediction is that there will be some kind of violence -- stoning and attempted storming of public buildings, almost with the certainty "of an amen in church" (kā āmen baznīcā) as the Latvian saying goes. Needless to say, there is nothing that can be changed by this, but it will happen simply because many people feel desperate and angry. The unions most certainly don't want to provoke a riot, but they will not cancel their protests (even though they signed the austerity packages -- with reservations-- along with other representatives of society).

I don't think June 18 will be the tipping point -- probably there will be spontaneous gatherings on June 16 and 17. People will simply flock to the Saeima building in the Old Town, called by internet appeals, Twitter, SMS messages and, possibly, old-style leaflets, which I have not yet seen. I don't exclude the possibility that unrest could start on these dates and that the government could order the Saeima to be cordoned off by the police and military. This, of course, would create a no-win situation, since the spectacle of thousands of security forces blocking off the parliament of a democratic country in crisis would bring international media attention and an even larger and angrier local crowd. But to take minimal security measures, as happened on January 13, would put the Saeima (with parliamentarians and staff inside) at risk of unpredictable actions by a much larger crowd than the few hundreds or 1 000 that gathered on January 13. These actions could range from a non-violent siege of the building, letting no one out, to a repeat of the January stoning that could escalate to a storming and possible trashing of the entire building.

In any event, this may be the "hottest" week in Latvia since the late 1980s and 1991. Foreign media (and local reporters)covering these events should take precautions such as protective clothing (helmets, eye protection), gas masks, first aid supplies and provisions for emergency legal/consular assistance. Since any hostility is likely to be directed primarily at political targets, it should be safe to wear large (but removable) PRESS or TV emblems on clothing, so that security forces will at least know who they are hitting, gassing, shooting with rubber bullets or spraying with high-pressure water.

Whether the police force will actually use force for a sustained period against large (and, as is often the case when hooligans and streetfighters blend with gatherings) non-violent numbers of people remains to be seen. The police have been subject to some of the harshest budget cuts and may feel that they are more on the side of the demonstrators (there have been calls for police labor actions) than the government.

Minister of Finance Einars Repše, who admitted responsibility for delaying dealing with the budget cut for several months, has made one valid point -- that rioting "will not earn a single lat" and that the cost of broken windows will be borne by the already ravaged state budget. Moreover, mobs generally have n program, even if they reflect, in the specific context, a justifiable political anger. The only "alternative" that could be forced on the government by a state of endless unrest is to let the country default, something that may be even worse (though probably not fantastically worse) than the collapse of education, health care and other public services that will be triggered by the budget cuts.

As to what will happen after the dust settles and any broken glass is swept up and replaced -- I see the economic downward spiral accellerating. Wage deflation will reduce the tax base in tandem with what I see as microeconomically logical tax evasion (why give good money for non-existent, at best shambolic services?). As government revenues fall, next year's massive cuts will be even more massive. One also has to reckon with the fact that even if Latvia were populated by Swedes or Finns who pay all taxes with robotic regularity, the plunging GDP (probably 25 % this year) as well as the lack of company profits would suffice along to slash the tax base to where LVL 500 million in cuts in 2010 will be far too little.

I believe other European countries will recover ahead of Latvia, triggering a massive wave of semi-permanent emigration, taking away both the best and brightest and those barely bright enough to get the picture and leaving the country in economic stagnation for the next decade. The blame rests largely with a post-Soviet political elite who spent 20 years putting rent-seeking through state capture ahead of nation building on the opportunity of restored independence.