Global Economics

Latvia: An Angry, Whimpering Baltic Tiger


After years of roaring growth, the tiny Baltic country of 2.2 million was the hardest hit of any in Europe by the economic crisis. Latvians are gunning to fix blame

Six tents are set up in the pedestrian walkway along Brivibas Street in downtown Riga. Large pieces of plastic and thick blankets are stuffed into the tent openings to keep out the cold. Behind the tents, wooden crosses are stuck into coffins sculpted from the snow, symbolizing the death of business and government in Latvia.

"They are robbing," Arnis Rancans, a 25-year-old student from Riga, says of the country's politicians and business people.

Rancans is one of the demonstrators taking part in this ongoing protest to demand jobs and improved social benefits from the government. Though they have largely been ignored by officials, since December the tents have been filled every night, demonstrators braving one of the coldest winters in years to protest the government's handling of the situation. They have different views of the economic and political gloom that has fallen on this small country.

The demonstrators often number in the hundreds. They come and go, some spending the night, others dropping by during the day to sit by a small fire that puts out more smoke than heat and talk to passers-by. Some have lost jobs because of the economic crisis. Others are social activists. Rancans joined the protesters after the government threatened 50 percent cuts to the education budget late last year.

"No education," he says. "Iceland, Greece – look at them. We have to go to the government. The government did these cuts. Where are the social guarantees for people?"

These days there are many reasons to protest in Latvia. The Baltic country of 2.2 million people is trying to crawl out of the deepest financial hole in Europe. Once the fastest growing economy in the region, Latvia, along with Estonia and Lithuania, the so-called "Baltic Tigers," experienced a surge of growth and productivity after joining the European Union in 2004.

Latvians called the boom of 2006-2008 trekni gadi or the "fat years." To visit the country at the time was to meet people experiencing a massive wave of optimism after having joined the EU, gaining the ability to travel and work in Europe without visas, and access loans and markets that before had been unavailable to them.

The 2007 unemployment rate in Latvia was just below 7 percent. Many young people in Riga were able to work, often in lucrative jobs, and attend university at the same time. The streets of Riga's old town were awash in foreigners who had arrived on cheap flights from Western Europe to party in the hundreds of newly opened clubs and bars and spend money in a largely unexplored, yet suddenly very exciting, region of Europe.

"Those days are over," one foreigner who lives in Riga says.

By 2008, the country was in decline. Investors disappeared and a booming real estate bubble burst. Economic output fell by a whopping 18 percent last year while unemployment stands at 22 percent. Public debt is projected to be 74 percent of gross domestic product for this year.

As the crisis escalated it became clear that Latvians were overspending and did not have the means to pay back the loans taken out on easy credit offered by Swedish banks after the country joined the EU. The loans had gone to finance houses, businesses, and even sports cars for people who could ill afford them. Looking back, many Latvians now charge the government with failing to check the banking free-for-all or promote job creation.

The most visible manifestation of the nationwide frustration occurred in January 2009 when more than 10,000 people protested in Riga, the largest public demonstration since Latvia became independent from the Soviet Union in 1991. Though the demonstration was largely peaceful, dozens of rock-throwing protesters tried to storm the parliament building.

Mismanagement

"They [the government] built roads, but no factories," says Kaspars Purins, a manager at Riga-based GP Recruitment Agency.

While the crisis in Latvia is linked to the larger global financial crisis, few countries have suffered such an abrupt downturn. The tent demonstrators – and most Latvians in general – blame the government. But Purins, who rode the cusp of the boom, and many others see additional reasons for the economic downturn, reasons that have as much to do with societal habits as with mismanagement.

Since GP opened in 2004, the agency has placed Latvian financial directors, bookkeepers, farm managers, building and shop managers, and architects in jobs inside the country and abroad.

When asked how many requests for workers from within Latvia there have been this year Purins makes a circle with his fingers. "Zero."

During the boom years GP quickly went from handling small projects to larger ones, opening four offices across the country.

Now the only requests for workers come from abroad. Since last year the agency has sent more than 1,000 Latvians out of the country, mostly to work in seasonal jobs picking fruit and doing construction in countries such as England, the Netherlands, Germany, and Denmark.

There are 50 percent more unemployed people trying to find a job through GP than in 2007-2008, Purins estimates.

Instead of having to take whoever is available, as in the past, employers can now choose from a mass of jobless applicants.

Many of the applicants are former state employees. Thousands of public sector employees have been laid off because of massive cuts in government spending required by the IMF and EU as part of a 7.5 billion euro rescue package.

"They were fired when the government started reducing the budget," Purins says. "There are more and more all the time."

Holding On

Zane Ruseniece is one civil servant who still has her job. An assistant to a member of parliament from Harmony Center, an opposition party, she first noticed the crisis when the company that bought the milk from her parents' dairy farm began delaying payments for several months, no longer able to afford to do business.

"I had to support my parents," Ruseniece says. "That was the first sign that I saw that things were getting worse."

Things continued to get worse after budget cuts reduced her salary last year by 20 percent. In January she lost her private, state-paid health care.

If she gets sick and needs to see a doctor, Ruseniece says, "I'll have to pay full price for all the services. And it is not cheap for an average Latvian."

On her reduced pay, Ruseniece says, she can no longer save money, help her parents, and pay off her university debt.

Yet she considers herself lucky. She still has a job while many people she knows are unemployed. Throughout Riga she sees more beggars. Many of the high-end shops are gone, replaced by discounters. To save money the city of Riga has taken to turning off streetlights in certain residential areas at night.

"You see in the media there is a robbery there, a robbery here," Ruseniece says. "You start to feel more unsafe yourself."

Is the EU to blame?

The tent demonstrators blame government corruption and mismanagement for the crisis. They are encouraging people to vote in the upcoming October elections to change the government and they are taking part in seminars hosted by the University of Riga to brainstorm solutions for the country.

They also voice common frustrations with EU policies toward Latvia.

"The EU said we must do this, do that," Rancans says. "That destroyed factories. There is only clubs and bars. They are deciding how much we produce because they don't need the competition."

Such criticism is typical of the tent demonstrators. Though many Latvians first enjoyed the influx of foreigners and capital after Latvia joined the EU, that Riga has become known as a place for cheap and often seedy entertainment has produced a certain degree of resentment.

From her vantage point working inside the parliament Ruseniece thinks that long-standing tension within the government has actually decreased in the past few weeks, most likely because new elections are only seven months away. She also doesn't think that antagonism toward the EU is necessarily a solution to Latvia's current problems.

"You can't blame the Swedish banks," she says. "They offered credits easily, but who was taking them? It was first our problem and not the EU. How can you blame the EU? Slovakia and the Czech Republic also joined in 2004 and they're not in the same crisis."

Ingrained habits

The government defends many of its measures, such as refusing to devalue the lat, thus effectively shrinking the country's economy, by saying they are necessary to meet a goal of joining the eurozone by 2014 and creating an economic stability that has never existed in Latvia, from where true growth can begin. While these methods have been deeply unpopular, many people believe that Latvians have themselves to blame for the crisis as much as the lack of government oversight and EU policies.

Purins provides an example. When he was a grammar school student during Soviet times, he was required to go and gather herbs and sell them to pharmacies for a certificate. Instead of gathering the herbs himself however, he and other students would buy the herbs from the pharmacies and then sell them back a few days later. They would lose money, but get the certificate from their school.

The same kind of thinking persists today, Purins says. A 20-year-old man applying for seasonal work in England with GP described having previously worked half a dozen different "unofficial" jobs for cash, but never paying any taxes. "This is the standard situation, very typical," Purins says of the man.

A tendency to work for cash in hand and spend it quickly dominates discussions on the ravaged economic landscape.

"We didn't earn it, but we spent it [the money from Swedish banks]," Purins says. "It was a big mistake. They should have used the money to make places for people to work. They have to earn the money first."


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