On driving in Latvia, present and recent past

I have started driving more again as summer arrives and I go back and forth to the family summer place in Carnikava for various reasons. I get the feeling that recent habits, which seem to have faded(slightly but noticeably) in the last few years, are re-emerging. Another striking fact is that at  almost every red light in central Riga, you can see around  three to five SUVs (sports utility vehicles, Latvians tend to call them jeeps) among the 10 to 15 cars that usually line up at an intersection. This seems like a high proportion, especially since I was at a gathering recently where a Swedish businessman said that his Latvian partner had driven around 1000 kilometers in Sweden and was surprised to have seen only a handful of Porsche Cayennes. Still another person who runs an auto parts and repair business said that one should look at the tires of the Latvian SUVs. Many still have winter tires because they cannot afford new summer tires at 200 LVL per tire. 

I think the high proportion of SUVs is a sign that the middle classes (who own "ordinary" cars) are driving substantially less than before. For those driving the "jeeps" it may also be a last gasp and a badge of economic success that will not be given up until the bank comes for it. Latvia already is said to be a buyer's market for late model, high-end repossessed vehicle.

I also found the draft of an article that was published in Tallinn' s (now defunct?)  City Paper  four years ago. There have been some changes for the better since, but a lot is still true.

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Building a new road for the insane

by Juris Kaza

 

            If it were only the statistics that counted, I would say Latvia has a come a bit of a way from 1991, when more than 900 people were killed on the roads, with far fewer cars than are registered currently. Today, with luck, the annual contribution of Latvia’s highways and byways to cemetery tenancy will be considerably less. However, for the visitor to Latvia, it is what one sees in day-to-day behavior and not abstract figures that count.

            If you have to drive in this country, then you will be among the most savage, barbarian drivers in Europe. Boorish, too – and this, as one would say of perverted computer software, is a feature and not a bug.

             I kid you not. Do not drive into Latvia with a loaded automatic weapon or even a baseball bat on the “death seat” next to the driver. You will not only be tempted, but also probably morally justified to use one, either or both on many of your fellow drivers.

            There is no typical Latvian driver –rather a varied menagerie of the reckless, loutish, egotistical and thoughtless. You can watch them zooming, whizzing, passing in three different directions – to the right, to the left and some improvised direction in between (this can, perhaps, be done on a S-curve where you start the overtake on one side and finish on the other). 

            Inevitably the moment comes when some huge Scania or Volvo truck appears looming in the rearview mirror. You may notice an imitation license plate in the cab window with a name like “TARMO” embellishing it. As the juggernaut grows still larger in the mirror – tailgating is also a Baltic truckers’ hobby – you face the imposing menace of the Estonian monster truck. These things simply go. It is you and other drivers with an exaggerated attachment to life and limb who move. Tarmo, for all we know, is an inflatable propped on the seat of a machine driven by satellite guidance.

            However, once you subtract the trucks from the wheeled zoo on Latvia’s roads, you are sort of left with the world as it was when the dinosaurs were on the decline. All that other traffic, swirling and parting as Tyrannosaurus Estonicus lumbers along at a relatively lethargic 100+ kph is the furry mammals that supposedly scampered at the feet of the great lizards. But that comparison breaks down – the smaller vehicles and their drivers are nothing like the predecessors of the many warm and cuddly species we enjoy in the contemporary animal kingdom. Drivers in Latvia are the creatures from the Gremlins movies of the 1980s, the screeching rat-bat mutants who took a satanic delight in malicious mischief.

            Alas, even that comparison breaks down, because the average Latvian driver (male) is almost as expressionless –either stone-faced or shitfaced (your guess is as good as mine)—as our pal Inflatable Tarmo. The women – often sleek trophy wives piloting combat-vehicle-sized SUVs with horsepower four times the woman’s kilogram weight – have a bit more written on their visages, along the lines of “I’m dumb, blonde and shouldn’t be driving a left-foot roller skate”.

            Since I spend my summers in Carnikava just north of Riga,  I experience most of the antics of Latvia’s highway Huns (speaking of whom, we’ll get to the Germans later) on the stretch of one of Latvia’s laboratories of the “let’s dig something up every summer” school of experimental highway building, the so-called Via Baltica. Mostly it is the segment between Adazi and the posh, by Latvian standards, suburb of Baltezers.

            Here on any day, you can see all the vices of the Latvian road – reckless passing, high speeds, sudden, startling unsignalled lane shifts and the favorite sport of tailgating. Apparently such things as the physics of stopping a vehicle aren’t taught in the driving school classrooms, or if taught, simply dismissed and forgotten. The reassuring thing about Latvian tailgaters is that they probably won’t hit and run should something happen, they’ll hit and sit (next to you, the driver in the front car) after flying in though your rear window.

            I want to interject here that I, who learned to drive in the reputedly bad-road manners Boston (USA) area, sincerely believe that I drive as one of the few who are sane. I do sometimes express my opinions of the other drivers until my wife says that I shouldn’t say “monkey brained moron” and the like when our nine-year-old is in the car.  I actually think, but do not articulate, far worse things: Yo, motherfucker, your Lexus SUV is very fast and yes, only your funeral will be bigger than your fucking car.

            The strange thing is that the often brand new and extravagant vehicles drag racing down the Adazi-Baltezers stretch are probably not, for the most part, purchased by the quick and shady big money that rolled through Latvia in the early 1990s  like a tsunami from the burst bellyful of ownerless post-Soviet assets. A lot of them are bought on the installment plan, leased and otherwise financed from some kind of regular employment or steady business and an above-average income.

            So what we have here are middle and upper income folks Mr. Hyde-ing it as soon as they put the key in the ignition of that BMW. Sudden, apparent prosperity, a caricatured Soviet presumption of how “capitalists” should consume, and the lingering, paranoid inferiority complex of the post-Soviet personality all, perhaps, come into play. It is not possible for all of us to simply drive to work, trusting and respecting other drivers. It is so much easier to hit the gas pedal, come what may and pretend that the entire commute, from home driveway to dumping the monster SUV in a handicapped space to buy cigarettes to the final parking spot by the office is one big thrill-ride.

            When I lived in Germany in the late 1970s, I observed something similar. On the Autobahn, there was always someone flashing super-nova bright high-beams and tailgating at 180 kph until you moved over and let the Teutonic schaefer-hellhound whiz by. Then I thought that Fritz (as Latvians sometimes call Germans) was getting a little Macht Frei (very loosely translated as “making/taking liberties) after three decades of post-war Arbeit (labor). It was also a time when more and more Germans could afford big, fast cars, and the no-speed limit Autobahn was a place to act out being a berserker in contrast to the Ordnung of the workplace and everyday life. Somehow, too, the traces of the totalitarian experience (especially since they largely brought it on themselves, voting for Adolf in ’33) were then still part of the German mentality. Things have probably improved – though I haven’t driven the Autobahn recently– but it took decades.

            For drivers in Latvia, I wonder if some kind of victimhood in reverse is behind this behavior. It is self-assertion on methedrine from a bad and dirty drugs lab. I also suspect it spills over into other aspects of life – the ugly, raving, sometimes Bible thumping mob that wanted to assault Latvia’s first gay and lesbian pride march. They literally wanted to beat and tear these people apart for Christ (who, when I last looked, was called the Lamb, not the Wolverine of God). Put these people in fast cars, and they’ll attempt a few killings for their own personal wolverine, which takes over their brain as soon as the tires start turning.

            This is the really scary aspect. Though I’m no sociopsychiatrist, mob-shrink or whatever they call those who diagnose diseases of the spirit affecting large parts of a society, I see links between the behavior on the roads and the dark undercurrents of homophobia, racism, xenophobia and what is wonderfully described in Latvian as karojoša tumsonība – crusading ignorance (though tumsonība has a pernicous twist, it ain’t just being dumb…)

 

   In late summer, they closed down and detoured the mad raceway segment of the Via Baltic that runs past Adazi north of Riga. When, eventually, a sign is put up explaining to what purpose (but not why), yet again, this segment of Latvian highway is being torn up and rebuilt, I would vote for having the text say, “Building a new road for the insane.”

 

Latvia will devalue-- Swedish press

The Swedish business newspaper Dagens Industri reports that a devaluation of the Latvian lat is drawing ever closer and that the Swedish central bank, Sveriges Riksbank was borrowing 100 billion SEK to bolster its foreign currency reserves ahead of the likely move by the Latvian central bank, which would probably be followed by devaluations in Estonia and Lithuania.
Latvia's central bank governor gave a bizarre hint at a devaluation by saying that if Latvia didn't get international loans, it would have to issue some kind of scrip (taloni--literally, coupons) instead of paying salaries to public sector employees. This would effectively be a second currency with which to buy food and pay rent and would undermine the current legal tender, the lat.
According to Dagens Industri, a devaluation would hit hardest at Swedbank, which has SEK 217 billion in lending to Baltic borrowers, most of it in the form of euro-based loans. The level of distressed debt has been rising even without a devaluation (or because of the domestic devaluation due to drastic salary cuts). The newspaper says Swedbank may have to raise at least SEK 10 billion in new capital. Both Swedbank and SEB (Baltic exposure SEK 186 billion) share fell on the Stockholm Stock Exchange, but SEB is seen as sufficiently capitalized for the moment.
A devaluation in the near future will effectively subject Latvia to the worst of both worlds -- wage cuts and mass unemployment that have slashed purchasing power to the minimum, and a further cut in living standards when the inflationary effects of a devaluation are passed along.

Bank of Latvia governor's bizarre "coupons" idea -- to scare the government?

Bank of Latvia governor Ilmārs Rimšēvics recent suggestion that the Latvian government would have to issue debt "coupons" instead of paying salaries was intended to "scare" the government into pursuing spending cuts so that it can get international loans.

The head of the central bank was essentially saying that the country would have to adopt a dual legal tender system amounting to a murky quasi-devaluation of the lat, but many people saw it as an alarming warning that the ration coupons of the late 1980s would return.

Rimšēvics said that if Latvia doesn't get  funding from the International Monetary Fund (IMF), the government would have no money to pay wages later this year and would have to issue debt paper that he called by the ambiguous Latvian term taloni (the plural of talons, a term most people in Latvia associate with ration coupons issued when certain consumer goods were scarce in the last years of the Communist system in the late 1980s).

There are anecdotal reports that people who misunderstood what was meant by taloni in the present day context have been hoarding salt, flour and the like. During the late 1980s, ration coupons were issued for a number items, including soap, laundry powder, milk for infants etc.

What Rimšēvics meant was that instead of depositing salaries to employee bank accounts (as is the normal practice) state and municipal agencies short of funds would issue IOUs that could be used as legal tender for purchasing goods and services (assuming merchants accepted them or were force to accept by some emergency law or regulation). In effect, Latvia would have a dual currency system with the lat circulating in parallel to lat-denominated debt paper issued in lieu of salaries. Inevitably an exchange rate would arise between "real lats" and taloni. It is difficult to believe that taloni would not be deeply discounted in a free market. Tens of thousands of public sector employees would try to unload their government-printed paper for "real" currency rather than test the local grocery store's or their landlord's readiness to accept taloni as payment.

A simple guess on the value of taloni can be made by comparing them to, say, a two or five year (non-Latvian :) ) treasury bill. If the debt instrument has a maturity value of, say 100 EUR, then it's present value can be calculated (i.e. the sum one would have to put in the bank to have 100 EUR, including accumulated interest, in two or five years). That could be, say, 95 or 90 EUR, but since, unlike the fixed maturity of the treasury bill, no one knows when an insolvent Latvian public sector would recover, the discount would have to  be very deep --anywhere from a substantial double-digit figure to -- worthless. 

 At the same time, confidence in the lat would be undermined and may have been undermined even if the whole mention of taloni was a bluff. It is, nonetheless, a signal that the Bank of Latvia is entertaining the idea of altering the value of the lat. Is it a hint of the devaluation that many serious analysts have been speculating about? The fact that the central bank governor floats wacko ideas about dual legal tender systems is also a sign that probably nobody really knows what to do next. The informal unwritten nod by the IMF to a 7 % of GDP deficit has already been undermined by calculations that even with the drastic spending cuts currently proposed (and likely to wreck the education, health care and law enforcement systems) will create an 11 % deficit.

As things now look, Latvia may well be heading for a double-devaluation in the form of an internal devaluation by drastic public sector salary cuts (and their impact on purchasing power, the domestic private sector and tax revenues) followed later this year by a real devaluation (letting the lat float and printing more of them to cover public sector expenditures and somehow make it through the winter)

It is not f**king Copenhagen, dear Riga cyclists

Bad times and a bit of green consciousness are making more and more people in the Latvian capital ride bikes. At my workplace, the security guard, who is responsible for locking up bikes in a downstairs storeroom, says there are at least 25 and almost no room for them. Last year there were just a few. Two of my department colleagues ride to work. Good for them, sort of...

The problem is that most bike riders I encounter whizz by on the sidewalk, no bell, no horns, no warning. This is often scary, about one near miss every day Almost no one wears a helmet, so that a collision with a pedestrian would hurt both parties.

There is no other place for them to ride. Bike paths have been built here and there, for some ridiculous but typically Latvian price. They are still few and far between.

The street and the highway are no place to ride. A few years ago, the answer would have been simple. A great many Latvian drivers simply are animals. Period. Now, of course, the animal count has fallen, maybe due to self-elimination by fatal accidents (these have also declined). But the average driver is still a borderline asshole, talking on a mobile phone and driving with one hand while turning  a street corner  where pedestrians are crossing. Just a few days ago a big jeep tried to pass me on a curved access ramp and nearly collided with a car on the main highway. Typical. And one reason why I will feel some emotional satisfaction if and when social unrest expresses itself in the burning of SUVs. To quote the Bloodhound Gang : "burn, motherf**ker, burn!" 

To sum up, the main reason I have mixed feelings about the increase in cycling in Riga and Latvia generally is that this society is not civilized enough for this development to be safe and beneficial to all. Riga is not Copenhagen or Amsterdam. The society here is not the Dutch, it is a a semi-savage (when it comes to road habits), alienated, reckless rabble. And it is not likely to change in the foreseeable future. So cycle at your own risk and at risk to pedestrians (I have seen cyclists talking on their mobiles, weaving with one hand down a sidewalk with shopping bags on each of the handle bars)

A slight look on the bright side...

I went for a walk with my video camera on Sunday, May 24 and recorded some ordinary stuff in Riga. This is just to show that the impending economic collapse is not very visible when the weather is fine and people still take to the streets and parks. The charity event that I mention at the start of the video raised some LVL 270 000 for a group of kids in need of special medical care, mainly from small contributions using phone-ins and collections on the street.

Othewise, even the Foreign Investors Council in Latvia (FICIL) has been saying that the economy could shrink by 20 % (the most recent figure was 18 %). Ilmars Rimševics, the governor of the Bank of Latvia, said in an interview that if international loans do not come through, there could be some kind of ration coupon system by the end of the year (!?). Rationing usually happens when there is a shortage of good, no sign of that. However, some towns in Latvia are providing social welfare in kind by allotting small gardens and vegetable seeds to the poor instead of cash payments. The idea is kind of reasonable, but also a symptom of the impending collapse of the social safety net in this country.

Anyway, here is the relatively happy video:

Q1 GDP down 18 %, collapse draws closer

Latvia's GDP fell by 18 % in the first quarter of 2009 compared to Q1 2008. Industrial output as a component of GDP fell by 22 %, retail sales were down 25 % and the hotel and restaurant sector declined by 34 %. This is further evidence that the country is on its way to economic collapse, with a complete disruption of public services now determined no longer by demands of the International Monetary Fund (IMF), but by a shrinkage of the tax base that will make even the drastic budget cuts now being proposed insufficient -- because even that level of public spending will be unsustainable. More in this video commentary

The final countdown continues...

Latvia's GDP dropped 18 % in the first quarter from a year ago. That tops official guesses of some 16 %, bad enough. Unemployment hit 11 %, with many of those discovering that, because of social tax issues, they are not eligible for unemployment benefits.

It now looks like the economy may nosedive by 20 - 35 % for all of 2009. A total economic collapse, sending the country back into the 1990s.  Industrial production plummeted 22 %, the hotel and tourist business by 34 % (brilliant move boosting hotel VAT sharply to 21 %).

Unemployment will probably go past 20 %. Tax revenues will shrink drastically, undermining any sharp budget cuts. It will no longer be an issue of whether the International Monetary Fund (IMF) thinks the cuts are sufficient, it will be a matter of no revenue available for public service. The government' s tax revenues will push the public sector salary cuts beyond the 20 to 30 % already decided. 

Even the slightest glimmer of opportunity for work anywhere but Latvia will send thousands packing their bags (remember, too, the choice of governance issue). What will be left by 2010 0r 2011 is a sad basket case of a country, where the least skilled workers, through a hopelessly inefficient and understaffed tax system support a skeleton social services and pension system for the old and infirm. 

Time to really, really seriously think about a Plan B.

If you can't get it together in 20 years since independence, you probably won't...

Tarnishing Lattelecom's image

My video comment on how the appointment of former prime minister Aigars Kalvitis to the supervisory board of Lattelecom is a symptom of state failure in Latvia and damages the brand and reputation of the telecommunications greoup.

Latvia: IMF! IMF? ...I'M F **KED??

The last day of April was a merry one for my one time journalist rival from Diena, Baiba Rulle, who broke a story that, according to  "unofficial sources", the International Monetary Fund (IMF) had agreed to let Latvia get away with a 7 % public sector budget deficit this year, retreating from earlier demands that the deficit be cut to 5 % or less.

The story appeared in Diena's internet portal -- the print rag (all due respect, that's journalist slang) carried a hockey (what else) story on page one. Within hours, the Minister of Finance, Einārs Repše, was 1) denying the Diena story and calling it journalistically irresponsible and 2) announcing that the budget, having cut most public services to ribbons and tatters, would have a deficit of 7 %.  What a coincidence!

As for 1) what journalist doesn't go over the top at one time or another or as Latvians say -- to whom does it not happen? (kuram negadās?). But 2) --without the sanction of the IMF-- is saying that the government will be bankrupt by the summer and all bets are off. In other words, woo-hoo, I'm driving the whole f**king economy over a cliff and flying back to my own planet!

UNLESS... Baiba's story is true, and our minister from the Red Planet did, in fact, get a very strong but possibly informal nod from the IMF that this time, we can get away with 7 %, get our billion (EUR?) from the IMF and keep the wolf away from the door for a few more months.

I think Baiba was right. I don't cover this stuff day to day, but some of my "channels" indicate that is what happened---the IMF, preferring to see a state collapse later rather than soon (I think the cuts needed for 7 % will destroy public services like medicine and education anyway, and hey, what did a police officer look like?) said to Repše -- go ahead, make a budget based on 7 % and assume we will look the other way and sign the check.

But that is not the end of the story, there is allegedly a bigger story, one that is not really a plan B, but follows from the " 7 % solution" which, (like Sherlock Holmes, was it, 7 % solution of cocaine, or am I wrong?) will only keep the collapsing state alert for a short time.

That is the one in which all bets are off, we do the d-word, print cash to make it through the night, and then maybe not pass Maastricht and go straight to Euroland.  Likely or unlikely??

A failing state, yes, Somalia, no...

A commentator to an earlier post wrote something that needs an extensive answer:

It is ridiculous to speak of a failed state in the current situation. What has happened is simply an economic crisis. Granted, the country has gone from unique prosperity to hardship in a few months but this can in no way be considered teh failure of the State.
The economy wasn't dealt with properly and didn't diversify enough. It is incredible to turn this into some sort of failed state. Even more unbelievable is to compare Latvia to lawless countries like those in latin america or in Africa.
There is no sense whatsoever in being so gloomy and announcing the end of the world when the national economy is facing problems. Latvia isn't the first to have difficulties or to be bankrupt, nor will it be the last.

First, I made it clear that state failure in Latvia was different from that in Africa. It is not a lawless area with khat-chewing gangs roaming the streets in "technicals" and probably never will be (no khat, bootleg vodka, maybe). The state has a) dramatically failed to take adequate notice of warnings of the impending crisis and failed to take measures to prevent and alleviate it (what is being done now is burning down the barn to spite the horse running off to the woods) b) it has also failed to gain, and has probably completely lost the trust of its electorate and population. 49 % of young people in high schools or university (of some 1300 queried) see no future in Latvia and say they will move to work or continue their studies in a foreign country. This is the choice of governance issue I have written about earlier. There is no real choice to replace the current elite in Latvia, not in the timespan in which a number of irreversible events in the process of economic collapse and social degeneration will take place.

To be sure, there is a global economic crisis, trigger to a greater or lesser extent by policy mistakes in a number of large economies (in the US, stimulating the proliferation of subprime mortgages), but exacerbated by misgoverance in Latvia -- unshakeable political arrogance, corruption, cronyism. The present government is simply a hapless fall-guy, for whom it is too late to take any action to prevent an inevitable collapse of the state budget during the summer, a devaluation of the lat, dramatic levels of unemployment (even with the state printing money) and stagflation throughout most of the next decade, even as Europe and the rest of the world recover and Latvia's workforce migrates to work and live in better managed states and economies.

A million LVL misspelling of ....skim milk powder?

Note: Small memory failure-- the error was in spelling skim milk powder, not oatmeal.

Another experiment with a late-night recording of a videoblog. Am I getting too lazy to write? All you Latvian-language readers -- please also check out political scientist Ivars Ījabs article.

Maybe it even translates into some kind of English gibberish with Google Language Tools.

Emigration and state insolvency (video version)

Here is an attempt at a video version of my remarks on emigration and the likely insolvency of the Latvian government within a few months:

Broadcasting Live with Ustream.TV

The EU: A choice of better governance and society

There was a theme in my earlier post that should be expanded upon. It will soon be five years since Latvia joined the European Union (EU) and there will be various assessments of the impact of EU membership.

I believe the most dramatic and, perhaps, underrated impact of EU membership is an aspect of free movement of people that is little discussed. We often view this freedom as one to study or temporarily work (for experience or better pay) in another EU country, or, for some, to set up a business in another country. But, in fact, free movement allows EU citizens not only to move for economic or academic reasons, but also to make a real choice of governance and of social environment.

It is clear that in many countries, the level of government efficiency, responsiveness to its citizens, general transparency and lack of corruption differs significantly from Latvia. In many countries, governments may not be very pleased with criticism directed against them, but they don’t label their citizens “yappers” (vaukšķi). They try to respond to criticism because they realize that, ultimately, the critics are the people who “hire” them to run the country with their tax money. They are public servants, like it or not. In Latvia, the ruling elite has been a class unto itself, convinced beyond argument of endless “fat years” or of their own abilities as bulldozers or space shuttles.

I won’t mention the government of Valdis Dombrovskis here, because I think he was put iin as a fall guy or is the first officer of the Titantic, kindly asked by the captain to “take over the bridge” just as the floor starts to tilt a little. His role is to go down with a ship that can’t be rescued any more.

Beside the arrogance and state-capture corruption (dozens of seats on state-company boards for “our own people”/savējiem, though now some are being liquidated), Latvia also shows a high degree of societal degeneration. It can be seen on the streets -- staggering drunks, rude, brutal public transport wardens, nervous, morose, despondent or anger-ravaged faces everywhere. A sight seldom seen in other European countries, even Scandinavia, where public displays of moods or emotions are muted. 

For many ethnic Latvians, there is also a certain discomfort from the cruder aspects of the Russian population -- the swaggering, shave-headed, running-outfit clad lumpenproletarians/urlas that one sees, especially in the Soviet-era housing areas of Riga. Behaviorally, these people are like the inhabitants of an American ghetto -- diminished work ethic, substance abuse, aggressive and crude behavior. 

Given the choice of going somewhere where these problems are not present, and paying only the price of having to use another language at work and daily life outside the home (most likely English), it is perfectly logical that increasing numbers of Latvians are “giving up” on their own country and choosing places with a better (though far from perfect) system of governance and social environment.

Another facilitator of what I call governance/social environment choice may actually have been brought to Latvia by the “Bulldozer”, former Minister of Transport Ainārs Šlesers -- namely, the low-cost airlines led by Ryanair. These make “virtual emigration” possible and relatively painless. In other words, Latvians can live under better governance and in better social environments without losing contact with the essentials of what was important or good for them in Latvia. Within a couple of hours, anyone can fly in from Ireland, Britain or elsewhere in Europe to visit family, friends, favorite places.  With fast internet connections, video links and Skype, “real virtual” presence is possible as well.

So we have a phenomenon of as  yet not consciously self-contained Latvian communities growing across Europe (in Ireland, Great Britain, eventually elsewhere), communities, which like the one in Ireland, where only a few hundred of some 20 000 Latvians voted in the 2006 Latvian elections. This is a definite sign of political alienation, whatever other ties they may maintain with Latvia. Moreover, these communities are self-selected (people decided to emigrate, they didn’t flee like the post-war Latvian emigres) and consist largely of people with the ambition, skills and self-confidence to start a new life in a new country.  In one sense, a bleed-off of Latvia’s potential, on the other hand, an inevitable result of state/societal failure combined with unprecedented opportunities for choice of governance and ease of transport and communication.

The final countdown -- economic collapse this summer?

It is becoming more and more apparent that Latvia will not meet the demands of the agencies and organizations offering it loans of up to 7.5 billion EUR. Budget and public sector wage cuts of up to 40 % would effectively destroy education, medicine and law enforcement as they exist now. It does not matter that, theoretically, there are considerable inefficiencies and possibly great waste in the structures of governance which, after careful analysis and planning, could be reduced and eliminated. There is no time for surgical reconstruction, the government will or would have to use an axe instead of a scalpel.

Faced with the collapse of core public services and, probably, even the “untouchable” pension system, the government will most likely not be able to carry out deep enough cuts to satisfy the International Monetary Fund (IMF) and other lenders. It will not receive any external funds and, at some point during the summer, simply go bankrupt.

What will happen next under this scenario, is that the government will declare a moratorium (if not default) on its foreign debt, while the Bank of Latvia will be forced to let the lat (LVL) float freely (effectively quitting the pre-Euro accession process). This will enable the government to basically print money and undo some of the wage cuts, allowing public service employees to at least be able to pay for subsistence goods and services on the Latvian domestic market (food, rent and utilities).

The devaluation will be a disaster for all those with mortgages and loans in EUR as well as for the Swedish parent banks of Latvian banks that have lent billions over the past few years. By some calculations, the default of a substantial part of the Latvian private sector could knock several percentage points off the GDP of Sweden. For this reason, there could be radical measures taken by Swedish banks and the Swedish government. One measure could be the nationalization by the Swedish government of Latvian subsidiaries of Swedish banks. Another could be the formation of a “bad bank” style asset management company, as was done in Sweden in the early 1990s. One thing is clear -- there would be little sense in trying to foreclose on thousands, possibly tens of thousands of mortgages in default. There would simply be no market for these properties, as prices have already collapsed. The “bad bank” could take over most of these mortgages and simply wait for better times, renegotiating terms with the occupants of many houses and apartments, possibly selling off some at a later date.

A drop in the foreign exchange rate of LVL (possibly by 25 to 30 % -- a wild guess) as well as a surge in the money supply will eventually push the country back into double-digit inflation, at least on imported goods and services and domestic goods and services with substantial imported inputs (energy, raw materials). At the same time, Latvian export prices will drop by as much in the short-term, catching up with or exceeding the depreciation of “competing” currencies such as the Swedish krona and the Polish zloty. This could give a temporary boost to the export sector of the economy.  Whether that will suffice to turn around the decline in Latvia’s GDP (possibly up to 20 % in 2009) is doubtful. The mass default of private, EUR denominated mortgages will freeze new lending and destroy any credit standing the economy had, so on can probably forget about a recovery in lending to spur the economy. Most likely, Latvia will stagnate with high inflation until 2015 or beyond. With a recovery of the global economy in late 2010 or 2011, we will witness a new wave of labor emigration to other EU countries. This will not be a purely economic choice, but also a choice of governance and social environment made possible by Latvia’s membership in the EU. Latvian socio-economic exile/emigrant communities in Ireland, Great Britain and possibly Sweden will grow and essentially become permanent, contributing only repatriated funds to the Latvian economy. But all of these processes will, to a large extent, be the result of short-sighted, ignorant and corrupt policies over many years, leading to irreversible economic decline and societal degeneration.

The white-trashification of Latvia?

My recent post about public transport wardens (based on a blog post in Diena) illustrates something that is part of a broader problem -- societal degeneration in Latvia or more bluntly, the rise and persistence of what one could call white trash subcultures.
One increasingly used concept is that of the urla. I am not sure where the word comes from, but it describes a kind of uniformly stupid, dissolute,sometimes shave-headed or short-haired, largely-substance abusing youth whose uniform is shabby counterfeit-brand jogging outfits. Most often the term urla is applied to Russian speakers, but there are those who argue that there are Latvian urlas as well. I definitely think there are, but since the society as a whole is ethnically mixed, the urla percentage is useful in defining what one could consider the social degeneration of the society as a whole.
Fellow blogger Aleks Tapinsh wrote a few years back that urlas are a dying-breed, but I would dispute this, because it sometimes seems that the proportion of urlas is increasing (if not their absolute numbers). This could be because a large number of “normal” young people have emigrated, the urlazation of the social environment being one of the contributing factors. A related English slang term might be mook.
Above and beyond the urlas, I think that the proportion of what I would call seriously strange individuals is increasing. This perception may result from living downtown and working just across from the central train station. Train stations are magnets for the strange and deviant. In Frankfurt, Germany, I worked a block from the train station and once I passed a person lying in a large cardboard box several days in a row.
Mind you, this is not a pleasant strangeness, rather, it is a disturbing aura of expressionless defeat, surliness, depression, empty despair. This plays out not only on the faces of the babuska-beggers one sometimes encounters (for them, having some kind of expression is a useful misery marketing tool), but on many young people. In another context (maybe it was the LatviansOnline forum) I described these as “thin, lizardine young men in baseball caps”. I coined the phrase “lizardine” to describe a lizard-like behavior of expressionless, motionlessness broken by a short dash to another position, there, to reassume the “lizardine” stance. Dark urla or semi-urla wardrobe goes with this type of creature (I am wondering if these are not grown-up “booze babies”, like the developmentally disrupted crack babies produced in American ghettos).
I had noticed all of this long before the economic crisis set in, so that is not the cause of these sights. The urlas and others were already there. They add to the ghetto-street-life atmosphere that I already described back in 2000 in an essay I circulated on the internet (pre-blogosphere days) and excerpts from which I reprinted in an earlier post. I also used the term mutt to describe such people, although in terms of a total lack of ethics, parts of the educated and “upper class” Latvian elite could be described as mutts
To the urlas and the generally strange I should add the regular encounters one has with staggering drunks at inappropriate hours. After midnight on Friday, one understands, but Wednesday mornings at 9 AM?
The overall picture one gets is of a society that, perhaps, has passed a tipping point and with the added pressure of the economic crisis, will suffer the lethal drag (to any rapid recovery or normalization)of this social substrate. In more prosperous societies, it is possible to reallocate social services and education resources to pull some of the mutts and mooks out of their condition, but this is unlikely in Latvia.

There is a website in Russian with photos of urlas. 

Riga public transport wardens are pigs!

Diena carries a report (in Latvian) by a woman who arrived with a planeload of Italian tourists at Riga Airport. Most of them (young people) took the no. 22 bus to the city center, basically  "the airport bus" . The bus was stopped by a group of public transport wardens (whose job, as in other European cities, is to check for riders without tickets) who stormed aboard, one of them waving a baton, and immediately started terrorizing the Italians, who had not paid (nor been asked to pay when buying tickets from the driver) a fee for larger luggage (n0 such charges, as far as I know, in any civilized country). There was no sign in English explaining this fee. The Italians were threatened with a 15 LVL fee (around USD 30) on their first day in Latvia.

Comments to the Diena piece indicate that this kind of barbaric, piggish scum also work on other parts of the public transport in Riga. The next time there is disorder in this city, perhaps the offices of Rīgas Satiksme (Riga Public Transport) should earn a few paving stones? :) Or better yet, that passengers throw the pig-wardens off the bus, rather than vice-versa. 

The next time I read that someone has punched out a transport warden, I will not get too upset (OK, chances are, it will be some lowlife fare evader, but what the heck...).

Latvian teachers protest wage cuts

More than 10 000 Latvian teachers marched on the Cabinet of Ministers' building in Riga on April 2 to protest sharp cuts in salaries. The austerity measures have been imposed to meet cuts in public spending required by the International Monetary Fund (IMF)  and lenders from the European Union in order for Latvia to receive EUR 7.5 billion in loans to keep the country from going bankrupt. 

The old lady speaking at the end of the video (with my rather sketchy subtitles) illustrates the mood of many people (though she was a passerby watching the event, not a working teacher. The Minister of Finance, Einārs Repše, told the hostile gathering that it was economically impossible to avoid the wage cuts on educator's salaries, which in many cases do not exceed LVL 350 a month or around EUR 500. However, commentators on Latvian internet portals said that even at this level of income, teachers were privileged and many were paid a much higher combination of basic salary and workload supplementary payments.

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.

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.

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.