Friday, February 29, 2008

Preserving the Soviet heritage

LETA news agency reports that a group of Latvian enthusiasts is fixing up a former Soviet nuclear base in Zeltiņi (Alūksne county, NorthEast corner of Latvia). The base used to house nuclear missiles aimed at UK, Germany and Spain. It was abandoned during 1990s when the Soviet Union fall apart and Russian army withdraw together with all the nukes. Now, local history fans are turning it into a museum.

Here is the news video and here is a written report (both in Latvian). And here are some photos.

This is a part of a broader trend towards preserving the "Cold War heritage". In the Central Latvian town of Ligatne, tourists can visit "Bunkurs", a structure 9m (30ft) under the ground which would have served as the command center for the government of Soviet Latvia in case of the unclear war. Now, it's a highly popular tourism object and one can even book it for "Real Soviet-time party".

Tuesday, February 26, 2008

Loss of competitiveness?

Estonian exports in December declined 8% compared to December 2006, while imports declined 3.8%.

This sounds like the dreaded "loss of competitiveness" that economists have been warning about. With salaries rapidly rising in Baltics, so are the prices for Baltic goods and we may reach a point where the rest of the world would no longer buy them at higher prices. And then, the new higher standards of living that we've reached will be unsustainable.

If Estonian numbers represent a trend (rather than a one-time fluctuation which do happen in numbers from small countries like Baltics), Estonia may be there now. Latvia is still not at that stage but the events here repeat Estonia, with 1-2 year delay.

UPDATE: A commenter points out a longer version of the story from Bloomberg. It mentions one of companies that have moved the production from Estonia, due to rising costs: Nolato, a producer of components for mobile phones.

Also, the commenter asks why Rigibor (the interbank interest rate for latvian lats) has fallen so much. (The 3-month rate has fallen from almost 13% in October to 7% now.) I'm not sure but there are two possibilities. It's either some easing policy or the speculators have stopped sending the rates up by borrowing lats for devaluation bets, after realizing that Bank of Latvia will not budge.

Learning geography from my visitor counter

Yesterday, my blog was visited by a person from North Pole.

North Pole, Alaska. It's about 1700 miles south of the geographic North Pole.

Monday, February 25, 2008

Opinion poll numbers

New opinion poll from Latvijas Fakti about how people would vote if elections were now. For first time, they have included the two new parties that are forming now: one consisting of New Era defectors (lead by Sandra Kalniete) and the group that left Fatherland and Freedom a few days later (lead by Ģirts Valdis Kristovskis) and another lead by People's Party's defectors Aigars Štokenbergs and Artis Pabriks.

The numbers are:
Harmony Centre 9%
Farmers and Greens 6.7%
Kalniete - Kristovskis party 6.4%
People's Party 6%
LPP/LC 4.6%
Štokenbergs - Pabriks party 3.7%
New Era Party 3.6%
Fatherland and Freedom 2.5%
undecided or would not vote 46%
The conclusions:
  1. Compared to the previous poll, the biggest loser is opposition's New Era. Kalniete and other former popular ex-New Era people are starting a new party and the former New Era voters are gone to them.
  2. The coalition parties remain unpopular but not more than two months ago. The huge undecided/would not vote segment is still there. The new parties have convinced the former New Era voters but not much of the rest of the country.
  3. The undecided voters will probably vote for someone. It's impossible to predict whom. But the next parliament will be quite different from the current one.
Even though the numbers will change a lot until the election, I translated them into seats in the parliament:
Coalition: 39
Farmers and Greens 15
People's Party 14

Opposition - ethnically Russian: 31
Harmony Centre 20

Opposition - ethnically Latvian: 30
Kalniete - Kristovskis 14
New Era Party 8
Štokenbergs - Pabriks 8
For all of post-independence Latvia, the Russian parties have been left in the opposition. With those numbers, it's hard to think of a stable government without the Harmony Centre, the biggest and the more moderate of the two ethnically Russian parties that we have.

Wednesday, February 20, 2008

Troubling economy news

Rebir, a Latvian electrical equipment manucfacturer is laying off 1000 of its 1200 workers. Rebir is one of the few Soviet era factories which managed to survive throughout the 1990s transition to a free-market economy... only to close its doors now.

According to the news report, the insiders tell a story about younger people from Eastern Latvia leaving for higher wages in UK or Ireland, older workers retiring... and Rebir left with not enough qualified workers. The company tried to fix that by ordering some parts from China... only to discover that the parts and the resulting equipment is not of good enough quality and to see their buyers go away to another equipment supplier.

We don't have an economic crisis in Latvia yet. A few months ago, the unemployment rate was at 5%, the lowest level in more than 10 years and even now, it's only slightly above that level. But reports of this type are worrying. If that's typical of what's happening in Latvia now, we may have more difficult times ahead.


Tuesday, February 19, 2008

Our new prime minister has new ideas on fighting inflation

He is blaming statisticians for calculating it in a wrong way. Namely, he thinks that it's wrong to include cigarettes into CPI, because not everyone smokes.

Well, the increase in tobacco taxes was indeed the main contributing factor to January's inflation numbers. But, over the entire year, a "non-smoker's inflation" would still be 13.5%/year. Which is less than 15.8%/year but is still a lot more than it should be.

Sunday, February 17, 2008

Referendum time?

Latvian Constitution allows popularly initiated referendums but the procedure is quite complicated. For the first stage, the proposal for the referendum needs to gather 10,000 signatures. If the signatures are gathered and verified by Central Electoral Committee, the process passes into the second stage. The Latvian government takes over the signature gathering process and it has to open places in every town and village where people can sign in favour of the referendum. If in one month, 10% of eligible voters sign, a referendum is held.

In practice, most of referendum ideas don't get out of the first stage. Since our independence in 1991 until last year, we' ve only had two proposals gathering 10,000 signatures. One, in early 1990s, was attempting to make citizenship laws extremely strict and fell slightly short of 10% in the second round. The other, by Social Democrats in 2000, was a law prohibiting the privatization of the national energy company, Latvenergo. It successfully passed both stages.

Now, we have two legislative proposals heading into the second stage of this process at the same time. The first proposal was born during the anti-government protests of last year. It would amend the Latvian constitution to allow for dissolution of parliament and early elections via a referendum (initiated through a similar 10,000-and-then-10% signature process). The main parties behind the proposal are Latvian trade unions and Aivars Endzins, the former judge and opposition's presidential candidate in 2007. Some of signatures were gathered during the anti-government protests, the rest throughout the fall and the winter.

The Central Electoral Committee has now successfully validated the signatures and the second stage will begin on March 12. If it succeeds, we can expect a referendum in June or July. And, if the referendum succeeds, I expect an attempt to dissolve the current parliament via the new law. And if that all works, we'll have early elections sometime in the second half of 2009. (All those signature-gathering processes are quite slow...)

The second proposal would raise the minimum old-age pension from 49 lats (70 euros) per month to 135 lats (190 euros). Latvian salaries have been growing quite quickly since 2000 but the pensions have not and many retirees have trouble making the ends meet (if they don't have children who can help). The signature gathering was started by a group of unhappy senior citizens and, a few days ago, Aigars Stokenbergs-lead "Society for different politics" group (which will likely turn into a left-of-center opposition party soon) stepped in. Now, they have the 10,000 signatures and the next steps will follow soon.

I am generally skeptical of referendums on money issues, since they can lead to people voting for impossible combinations of low taxes and high salaries/benefits. But it's a disgrace for Latvia to have people receiving 70 Euro/month retirement benefits.

Friday, February 15, 2008

The next Eastern European bubbles?

Slovakia is now the fastest-growing economy in EU, with an economic growth rate of 14.1%/year. And new car sales in Lithuania have increased by 55.2% compared to last year.

I don't know much about Slovak or Lithuanian economy, but both of those statistics look like Latvia in early 2007. One year later, the economic bubble in Latvia has burst and people are guessing how bad the after-effects will get... Are Slovakia and Lithuania developing similar economic bubble and what they will look like in 2009?

Thursday, February 14, 2008

Signs of economic slowdown in Latvia

In two news stories, one next to another in the economy section of First, today's "Dienas Bizness" reports that several Latvian manufacturers of concrete are approaching bankcrupcy. As the Latvian housing bubble is bursting, some of the new construction projects are being cancelled. The price of concrete has dropped 15-20% and many manufacturers are struggling to stay alive.

The second story reports increasing lines for milk in farmers' markets. With food price inflation running at 24.8%/year, people are turning to market as a cheaper alternative to grocery stores. I have been hearing that from friends for a couple of months and now it's making the news stories, as well.

The slowdown will probably get worse before it gets better. Developing...

Wednesday, February 13, 2008

New notes from new Russian embasador

Last Friday, Russia appointed Alexander Veshnyakov as the new Russian embassador to Latvia. He is best known as the long time chairmen of Central Election Commision of Russia. For a few days after that, our media were busy translating Russian jokes about Veshnyakov (for example, about him trying to decide whether a three-headed dragon gets one vote or three) into Latvian.

The most interesting was, however, his attitude towards Latvia. He was interviewed by Echo of Moscow radio station before leaving for Latvia and he declared that he will learn Latvian because he considers that as a measure of respect for the country to which he is appointed as the embassador. I've never heard that before from any of previous Russian embassadors...

Latvia becomes a donor state for World Bank

The World Bank has reclassified Latvia from a borrower state which receives its aid to a donor state which provides aid to other countries.

Wow! I didn't expect it to happen so soon. Despite all the political mess that we have, we are now wealthy enough to be helping others.

Now, I only hope that the burst of economic bubble does not push us back into the category of countries that need help from the rest of the world...

Monday, February 11, 2008

December foreign trade statistics

I wasn't planning another economic statistics post today. But the Latvian Statistics press release was too stunning.

In December 2007, Latvian exports increased by 12.9 % (compared to December 2006) while imports decreased 6.2%. Here is the graph comparing this to the previous months (export growth in red, import growth in blue):
Import growth has been slowing down since summer but this is the first month when Latvia is actually importing less than a year ago. The previous time when that happened was in 1999 when Latvia was still struggling with after-effects of 1998 Russian financial crisis (which involved bankcrupcies of several Latvian exporters and a major Latvian bank).

So, we are getting a quite dramatic economic slowdown now. And the curve looks like it's still heading even further down.


Friday, February 08, 2008

Latest inflation numbers (January 2008)

Latvia: 15.8%/year.
Estonia: 11%/year.
Russia: 12.6%/year.
Ukraine: 19.4%/year.

On everyday level, I have seen the price of beer or coffee going up by 25% in more than one eatery in the last few weeks. (The food prices are probably up as well but the changes are harder to figure out, since I don't order the same things every time.)

I'm usually on the optimistic side, when it comes to the outlook for the future but, in these numbers, I simply can't find anything positive... And the fact that Latvia is not the only country going through this, is not a consolation (although it does disprove "the inflation is Kalvitis' fault" nonsense that is popular in Latvia).

Thursday, February 07, 2008

US visa update

Today, someone came across this blog searching for "visa waiver latvia estonia usa 2008". They were probably looking for this story but the story is not so good for Latvia. Estonia (along with Greece and Czech Republic) was added to US visa waiver program. Latvia (and 7 other EU countries from CEE) was not.

Still, it's a good story. Trends in Latvia often mirror Estonia, with one or two years delay. Canada stopped requiring entry visas from Estonians in September 2006 and from Latvians, one year later. So, visa-fre travel to US in 2009 and 2010?

Wednesday, February 06, 2008

Latvian government gives up on fighting inflation

Yesterday, the Latvian government had a closed two-hour meeting on its ongoing plan. The decision? With the Latvian economy rapidly slowing down, the inflation will slow down naturally. Now, the main concern is that the slowdown may be too sharp and the government is considering boosting the economy by spending more and earlier in the year (as opposed to the traditional Latvian public sector end-of-the-year spending sprees).

So, the anti-inflation plan is about to be forgotten. The planned 1% GDP budget surplus for this year will probably be forgotten too, particularly if the slowing down economy leads to revenues falling short of forecasts.

Meanwhile, the Latvian business press reports that the number of vacancies in Latvian chain stores has decreased by a half, as people start taking up jobs that they would have passed on a few months ago. The job market is still quite tight, though, and I still occasionally overhear conversations about how hard it is to find new employees and how outrageous are the salary demands from people with no experience (and that happens in various sectors of economy, not just one).

UPDATE (Feb 8): EU is still urging austerity for Latvian government. In my opinion, they are a few months behind on what is happening in Latvia.

Tuesday, February 05, 2008

January real estate numbers

According to various Latvian real estate companies, the apartment prices in Riga declined another 2% in January. The overall decline, compared to peak prices in April 2006 is now between 12% and 20%, depending on which real estate company you choose to believe. (My anecdotal evidence, from my own ongoing apartment search, is that 20% may be the more accurate estimate.)

The decline has been substantially bigger than anyone expected and does not show signs of stopping. Some real estate companies predict that it will stop in about two months but they were making the same prediction 3 months ago...

Sunday, February 03, 2008

Latvian opposition crisis: three days later

For now, New Era Party (Jaunais Laiks) has lost 4 of its 18 MPs: Ina Druviete, Kārlis Šadurskis, Sandra Kalniete and Ilma Čepāne. The fifth supposed defector, Uldis Grava, decided to stay in the party. The party also lost a number of regional leaders, including almost all the chairmen of the local New Era organizations in the Vidzeme region. There are rumours about more defections next week.

This is the biggest split in a Latvian political party in about 10 years. And it's very high profile people leaving: in 2006 elections, Kalniete and Druviete were #1 and #2 by the number of individual votes among all New Era candidates. Čepāne was #5, Šadurskis was #8.

Here is what is a roundup of what various parties are saying:

The New Era official story

The current coalition is directing government investment to towns where the local governments are controlled by their allies. The towns with New Era mayors are being bypassed. Regretably, this has made some of local New Era leaders to switch parties so that their towns would finally get some money for school repairs etc. As for MPs, some of them (e.g. Kalniete) have been conspiring to destroy New Era from within for a while.

My opinion: the current coalition directing funds to their favorites? Likely true. Is that the main reason for the mass defection? I doubt that. Among the defectors, there's a fair number of people who do not hold positions with any local government and, thus, do not depend on funds distributed by the coalition. And Kalniete being an agent of the coalition, after the same coalition mistreated her in 2004 by not reappointing her to European Commision... that's simply ridiculous.

Defector's stories

The stories vary by the person. Some of defectors say that they wanted New Era to be in the Godmanis' new coalition government, which was formed in December. Others say they want to stay in the opposition.

The common thread is that they complain about their opinions being ignored. During the coalition negotiations in December, the key decisions were made by the party chairman and very small number of people around him, leaving the rest of party leadership out. This is not uncommon in Latvian politics. But New Era was supposed to be a different type of party, with more democratic decision-making within the party. And it didn't turn out that way.

What's next

The New Era Party chairman Krišjānis Kariņš has taken responsibility for the crisis and resigned. The party will elect a new chair on March 1. This will likely lead to the party's founder Einars Repše and the people around him consolidating power.

People's Party is trying to talk the defectors into joining it. People's Party defector
Aigars Štokenbergs also wants them to join his new party. And the defectors are talking about starting a new party themselves, possibly together with some MPs from the current coalition who don't feel happy there.

In short, we will probably see more than one new political party in Latvia between now and next spring's municipal election. And there will be more defections from the existing parties in the process.