End of the Year Reflections

Surprise! The year will end sooner than you expect.

What has it been like for Latvia?

It has been a busy year – politically, socially, and economically. And happily so, because we have awoken from the all-embracing stillness caused by the grave crisis.

Politically, a whole series of changes has been brought about. After only eight months of parliamentary work, the dissolution of the Saeima was initiated by then-incumbent President Zatlers, who was facing re-election himself this summer in June. The popular vote supported him in a referendum, and the parliament was dissolved with a snap election announced for September 17.

As was to be expected, President Zatlers was not re-elected after his radical move, since the parliament itself was his electorate, thus becoming the first-ever Latvian president to serve for one term only. The Saeima elected a new president, Andris Bērziņš, then a member of the Union of Greens and Farmers political group in the parliament. Originally greeted by distrust and suspicion, President Berziņš has considerably increased his public popularity, demonstrated recognizable competence in domestic and foreign policies, as well as shown a surprising modesty in using regalia and extras.

Instead of descending from the Latvian political podium, President Zatlers took a risk and launched a new political party barely two months before the snap election. The party was ambitiously named the Zatlers Reform Party (ZRP), thus emphasizing the need for further reform. Slackness in the reform process was one of the criticisms Zatlers directed at Dombrovskis’ government when asking for the dismissal of the parliament.

There have been many more political changes triggered by the decisions last spring and early last summer. The whole spectrum of political parties has been restarted, and the Latvian political scene looks much neater after the election, though some long-term players have disappeared together with their considerable experience in state affairs, both positive and negative.

Two political parties with a long record in Latvian politics lost the election and decided to call it a day. They are the right-wing conservatives, the People’s Party, led by three-time prime minister Andris Šķēle, and a mingle of economic liberals embraced by Christian democrats, the Latvian Way/Latvia’s First Party, which was represented in the last Saeima by the party alliance For a Good Latvia, led by Ainars Šlesers. Both parties have considerably influenced Latvia’s recent history, served in ruling coalitions in many governments, had prime ministers, and played an important role during the time when Latvia was qualifying for the European Union and during the years of fast economic growth. But their leading politicians have been accused of exercising illicit influence on governmental and parliamentary decisions, as well as of mixing their economic interests and state governance.

These same accusations have pushed the Union of Greens and Farmers to a parliamentary periphery, with less votes and no seat in the government. Political perturbations and snap elections deprived even the Unity party of a great deal of its influence, despite the fact that Prime Minister Dombrovskis has enjoyed a great deal of international success all year long, lauded all over Europe as a person who curbed the crisis by taking unpopular decisions and brought the country back to growth.

The year will hopefully give the nation a freshly adopted budget, hastily drafted by the newly approved government of Unity, ZRP, and NA (National Alliance), as well as a closed deal with international lenders, the IMF and the EU, who are currently revising the government’s performance during the three-year lending program.

Economically, the country has consistently continued its stabilization process. As Prime Minister Dombrovskis stated in several of his recent public addresses, this has borne fruit and is becoming more evident, with Latvia’s economic growth rating ranked third in the EU, at 5.3%; with the economy being re-structured and production and exports reaching pre-crisis times (the annual growth of production is 13-14%, the growth of exports is 30-40%); and last but not least – a visible improvements in the labor market (the unemployment rate has dropped from 16% to 11.8%).

Latvia’s exit from the economic crisis unfortunately coincides with the worsening in the euro zone and looming stagnation in many export markets. However, both experts and politicians agree that Latvia is much better prepared for economic percussions in Europe or elsewhere than it was before the first wave of the crisis.

Also, Latvia has earned the status of a show–case for how to deal with a dropping GDP and a huge debt. Against many skeptical forecasts, we can now spread our own lessons of overcoming the crisis. The main lesson, as formulated by Prime Minister Dombrovskis, is that putting off consolidation measures only deepens the crisis and makes the financial markets inaccessible.

Some countries believe that their way out is in warming the economy and waiting for improvement to then curb expenditure. But stability and growth may not return without austerity measures or at least budget consolidation. There are two ways to do it: increase the revenues (read: increase taxes, production, export), and/or cut expenditures (cut salaries, social benefits, civil service). Latvia did both to the proportion of 1:2, respectively. And the politicians who did it were re-elected.

The merits have to be shared by the government and businesses. Some say that this has been achieved in spite of what the government did. But to give the government some credit, we have to admit that Latvia has risen ten pegs in the Doing Business ratio. This is the result of persistent government efforts in dialogue with employers’ organizations.

Even more importantly, Latvia has returned to international financial markets, so it can refinance its public debt. This will be done parallel to further budget balancing efforts, with an aim to qualify for fulfilling the Maastricht criteria and consider entry into the euro zone when the time is ripe.

The most painful problem of 2011, though, is the increasing number of emigrants. Researchers and statisticians argue about the exact emigration figures, but the number is serious enough (around and above 100,000 people) to make the new government reconsider its demographic policy priorities, create stronger diaspora policy measures, as well as probably admit that immigration policy guidelines have to be kept ready for emergency measures.

After-election time and government formation has unfortunately left its imprint on interethnic relations. When President Zatlers called for the dissolution of the Parliament one of the reasons he gave was inability of the Unity party to reshuffle the government partners and have the Concord center in the coalition instead of the Farmers. Expectations for the voters of the Concord center were further heightened by Zatlers’ appeal to have the so-called Russian party in the government right after the elections. Thus disillusionment when it did not happen is understandable. But was it the sole reason for the initiative to have a second official language status for the Russian language? Most probably, not. Ethnic friction or discord can be easily triggered, but it takes time and patience to restore balance.

However, the year has brought many joyful moments for Latvian performers, artists, conductors, and choirs. Latvian opera singers – Elīna Garanča, Maija Kovaļevska, Marina Rebeka, Sergejs Antoņenko, and Egils Siliņš – have conquered major international stages and are no longer novices at the Metropolitan Opera and Covent Garden. Latvian conductor Andris Nelsons is enthusiastically greeted in all the musical capitals of the world and follows closely in the steps of his teacher, Mariss Jansons. Latvian composers Pētersis Vasks, Santa Ratniece, and Ēriks Ešenvalds, as well as choir conductor Māris Sirmais, are but a few globally recognized names promoting Latvia’s international reputation. And the New Riga Theater, led by stage director Alvis Hermanis, continues to surprise and inspire theatrical audiences here and abroad.

For Latvian society this has been an active year, one that has demanded balanced and thoughtful decisions. The referendum on the dissolution of the Saeima helped us to remember our responsibility as voters. The election results are too recent to be evaluated. And the approaching referendum on the language issue will be a serious test of the country’s tenacity and resilience, demanding a sensitive and well-tailored political leadership.

We just need a bit of luck next year!

Karina Pētersone, Director, Latvian Institute