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?