Naked Brits perform at Riga opera!

Nothing seems to deter British stag party tourists to Riga from anti social behavior. On a chilly friday evening at 1900hrs this crowd paraded their bare bodies for all to see on the edge of the opera car park. The new British Embassy Charge d'affaire to Riga Dr Anthony Stokes has clearly got his work cut out. This bunch were lucky not to be spotted by the local police.

Should the Lat be the world reserve currency!

I watched an excellent BBC programme on the world economy this evening. It featured American Robert Mundell, one of the leading monetary economists in the world. He was highlighting the danger of the world reserve currency being the dollar and advocating change. The fact that the Chinese are currently holding 3 TRILLION US dollars I found to be a pretty persuasive argument. If the USA goes so does China, and probably the rest of us too. That means planting even more potatoes in Mazsalaca.

So the Lat seems to me to be a good alternative. My reasons are as follows:

1. Despite the crisis and Latvia going downhill faster than a 4 man bob, the currency has held its (false) value rather well.

2. It has solid IMF backing.

3. There are more than enough trees in Latvia to make all the paper.

4. Being located in the centre of the known world (the EU), Latvia has super transit links all over the place, including a railway line to China to carry all that 3 Trillion dollars worth of Lats

5. It is already the reserve currency for Sweden.

6. The Lat has pretty colours.

To add to the fun, apparently the Godmanis government and National Bank governor acted unconstitutionally when asking for IMF and EU support by not getting the agreement first of Parliament. So the whole support package and subsequent budgetary change is illegal. Will they go to prison?

Latvian railways - a rough diamond in need of care and polishing

The "transit" part of Latvian Railways is one of the real national success stories; helped by Russia admittedly, but business is business! 30% of the business is actually privately owned, taking nothing from the government and makes a profit. This is unlike the franchises in many other European countries. The main markets for Latvia are Russia and Belorussian, but they also bring and take goods to the Asian "Stans" and even to far away China. A common experience in Latvia is seeing and hearing the huge oil trains of 40 or more wagons rumbling and schreeching on lines that look simply far too delicate to hold such a heavy monster. I live about 600m from the railway and at night the whole building shakes as the full trains head for Riga and Ventspils ports.

One of the really clever things though is that all the countries share rolling stock. This means that goods or oil are loaded onto the nearest waggon and moved immediately. This greatly speeds up and increases traffic flow, and of course profitability. It is a clever idea that the EU could perhaps copy.

Lines are being slowly upgraded. Thales is upgrading the signalling from Ventspils to the Russian border and Bombardier are doing the next stage. There is though a lot of EU money unspent that the Ministry sadly has not got its act together to organise contracts. It may be lost.

Sadly, the commuter train story is a bit more bleak than transit. The Latvian railways are badly under resourced and also seriously in need of new lighter and smaller trains. At present the old large trains are still pulling heavy, often empty carriages. The government expects the goods profits to be used to subsidise people. This reduces considerably the scope of the railways overall. For tourists the good news is that travel is free. Well that is not quite true but many journeys are one twentieth the cost of their UK equivalent. The trains are frequent and clean, just a tad short on air conditioning in the summer. But you can certainly "see Latvia by train" although some journeys are a bit too much of a forest view for most. With Hotels as littl as 15Euros a night in places like Liepaja, a Latvian train holiday is great value for money

But one real anomaly is the lack of a train between Tallinn and Riga and then south to Poland. This line needs making soon please.

Another brick in the Latvian crisis wall!

The Latvian Building Materials Traders association is holding the government to account for letting contracts to illegal traders. Vice President Guntis Sokolovskis points out that those traders who avoid taxes and don't pay wages are in a better position to get government contracts because they can offer lower prices for goods and services.

The State is apparently still awarding contracts on the basis of lowest price against the technical specifications. Sokolovskis points out that the disordered government policies threaten the honest traders who are paying both white wages and taxes.

There are many companies in the building trade who are owed large amounts of money or owe money. The usual practice is to close the company and then open another one. This year 587 new building supplies companies have newly registered despite the industry contracting severely.

The Association has 34 dealers and a combined annual turnover of 386million Lats.

Mr Repse - 3 Points of contact?

There were two earthquakes in Latvia this week. The first was 2.7 on the Richter Scale and was only 40Km below the surface. Thankfully no one was hurt. But clearly something is happening deep below Latvia and it raises questions about a larger quake sometime in the future. I hope the emergency services are thinking about this carefully.

Back on the surface, the second earthquake was the publication of the Letter of Intent to the IMF from the Government (and I promise this time no dry humour about the IMF - this is too important for that). This document was signed by the government except for the Tautas Party. The TP clearly have objections about the note but no one I talks to thinks that those objections are for the benefit of Latvia. This was confirmed by the rather damning television telephone poll on the news show Kas Notiek Latvia last night.

But to the document itself. There is a rule in climbing that you keep three point of contact as you move forward. Of course we have all seen free climbers on television doing amazing things and breaking this law. But there are two things to remember when watching this, first they are the absolute best in the world, and second, they usually die early because they fall off. The Latvian government in climbing terms is still a novice and needs to move carefully, especially on a crisis climb like this where the overhangs are large and growing worse as we move upwards. Moving(and changing) everything at once may not be a good plan.

I mention all this because the document raises several thoughts in my mind. Firstly there must be someone clever in the finance ministry who can write good corporate "fiscal speak". There is nothing wrong with this because I wrote the first Membership Action Plan for Estonia to gain NATO membership. But whoever wrote it, the Latvian Government signed it and must take full responsibility for the language and the contents. And inside the note there should be a balance between the fiscal social engineering required by the bureaucrats of the IMF and EU, and the reality of running a living, breathing country of real people. This takes compromise, intelligence and strong leadership.

What is worrying is that as far as climbing out of this crisis, the two "legs" of strengthening the "banking and fiscal system" and providing "social guarantees" appear to have been well covered. I totally trust Mr Repse to get that right; he has had plenty of practice recently. But nowhere can I find any indication that the two "arms" we need to help us move forward of "inward investment" and "supporting Latvian business" have been thought of in a positive sense at all. In fact this climber would appear to be expected to climb upwards whilst someone beats his hands with the tax hammer of increased VAT, increased personal income tax, and the new real estate tax. This paper gives me the feeling that the government do not know where the real money to run the country comes from in the first place. For someone to pay real taxes to support the country, they have to earn it by risk taking business first. The paper is fiscally solid, but totally devoid of humanity. I feel the dead hand of "top down control" old fashioned Socialist/Soviet thinking here.

I am not an economist by education (but note that none of our Latvian economists have covered themselves in glory so far, so I surely could not do much worse than them), but I do have a small business and know what I see around me each day. I already feel battered by events here. And I am noted for being one of the most positive men on the planet. How much worse is it for newly unemployed skilled workers, sacked civil servants and businessmen running S&MEs? There is nothing in this paper to warm their hearts that the government understands how their new job will be created or where the hard money that drives the economy comes from at all. And if only half the government sign the paper it is also hard to see how trust will be created for inward investment from international business. Yes two new banks want to open here, but I guess that they do that to take our Latvian (for Latvian read IMF) money out, not to create new wealth for us.

At some stage in the future, the IMF and EU money must be paid back by Latvia Ltd. This means gaining an income that is higher than the still exorbitant cost of government spending. How Latvian business and society will be developed to create that money needs to be addressed in a note too. Maybe that plan is part of the Top Secret annexes that we the public have not been shown?

Taxi! How much to the airport please? 100lats - cheap at the price!

Ten yours after the last "taxi war" there is taxi trouble again on the streets of Riga. The stimulus has been the production of a fleet of Air Baltic coloured taxis operating out of the airport and trying to deliver (for now) a service that does not cost and arm and a leg.

For far too long, Riga taxis have been ripping off tourists, charging criminal amounts for the short journey too and from the airport. This has not been helped by the appalling bus service. Thankfully the new Mayor of Riga, Nils Ushakovs cut the ridiculous baggage charge on the bus route. The idiot inspectors were pouncing on unwitting tourists and fining them, thereby ensuring that they never darkened the doors of a Riga hotel again. Now at last something sensible is happening. Hopefully the Interior Ministry, police and Riga council will settle any political differences they may have and get us a taxi service we can all afford to use. I suspect that this may take some time though.

Ushakovs also this week went round the Old Town night clubs and read them the riot act. We shall see how much effect this has. At least he is trying.

So now the summer sales have finished and the new winter clothes are in the shops. Some clothes shops have started to discount already and I have seen 70% off already in several places. Sadly I cant afford to buy everything I want! It is clear that we still have huge overcapacity. There are enough jeans on sale to keep all of India happy, and there are more badly made and expensive cheap-cloth suits than Latvia could ever want.

Flat prices appear to be dropping more slowly this month. One reason might be that there have been lots of moves into cheaper flats already reducing demand. The medium priced new flat owners (most with larger debts) are hanging on and trying to avoid the inevitable. But when the utility bills come in many will have to bite the bullet to get a tenant. A Russian firm has gone round offering cash for flats in our block. I guess they have gone everywhere. I forecast a spate of cheap cash sales in about two months.

I have seen another couple of businesses not taking credit cards. I wonder when un-taxable cash will truly become King in Riga (as it is already in the regions).

The anti corruption bureau is now also inevitably being squeezed for funds. I would have thought that this was one of the last things that should go. It shows that the government still has not got joined up policies. There are far less important things to cut than this, especially at the moment with lots of free IMF money sloshing about.

More beggars - but in town still no children. This used to be a feature in the past. I guess the police are stopping them. There is though a growing number of clearly homeless mentally ill people roaming the streets. They are a terribly sad sight as they drag dozens of full plastic bags around. Many of these people, and the normal beggars are physically handicapped in some way which says much about the social system here. We have so so far to go.