LATVIA METEORITE REPORT 2009

In general, Latvia has survived better this year than many pundits, including me, would have thought possible. But the trends have not been good and some of these may come back later with a vengeance

Politically the Dombrovskis government has held firm against all critics with leather-suited finance minister Repse as the backbone. The other parties in the coalition have acted like spoilt children, refusing to sign papers for the IMF they agreed upon previously, and even bringing back the hated Skele to "save the country". Thankfully President Zatlers has improved dramatically over the year and shows new found confidence. Time will tell if he has the personal and political strength to face up to the election challenges created by Skele, Lembergs and Slessers next year. His predecessor VVF had a 5 minute rush into politics again as a possible EU Council President and then promptly disappeared. Former PM Kalvitis went to Russia and raised Latvian national hackles by having longer at dinner with Putin than Zatlers had with Medvedev

The working half of the government managed to deliver the 2010 Budget on time but still tried to cheat by not creating the cuts that were asked for by the EU and IMF. Instead they intend to raise dodgy taxes that most independent financiers think will never create money. The Constitutional Court has already ruled the pensioners cuts illegal so the budget is 100m Ls short before the year has even started. And the tax receipts continue to fall making the budget figures even more suspect. Conspiracy theories abound about the IMF and EU, and about anyone else who can be blamed for the crisis.

Business has steadily declined although there would appear to have been a welcome levelling out from September onwards. Christmas sales were apparently 25% down in the shops from last year. The shops are dropping prices daily and new "cheap shops" are springing up, and doing good business. Some observers see signs of business and export improvement. It is probably too soon to call.

The real weakness this year has been public service. The ministries have simply failed every test thrown at them. The grand plan of employing highly educated professionals and promoting only those with the right political allegiance has become a burst balloon. The appalling results show that the current civil service leadership structure needs a total rethink.

The real estate market has bombed. Flat prices for rent and sale are gradually dropping all over the country. There are still some companies with deep pockets holding out for a rich Russian to save them. Some bizarre prices are still apparently being paid. But there are few signs yet of real international investors. The prices have further to drop before anyone with common sense is tempted. The risk of failing to find paying tenants for all the empty flats and offices is just too great.

Socially the country has entered a strange time warp. Everything looks OK on the surface but people are going about their business in a robotic fashion with little joy to be seen. Understandably, many people are now fleeing the country, for UK, or anywhere that will either employ them or marry them. But these are mainly low paid workers. The wandering, coffee drinking executives are becoming unemployed in growing numbers as companies either fail, or thin out the management. There are too few tax incentives and too little investment funding to coerce them back into business again yet. Judging by the joke jobs on offer on CV online, if they are waiting for paid employment, they could be standing in line for a long time.

One good thing is that the crisis has put nationality and language onto a back burner, except that is, for the few language bigots who still see anyone not speaking fluent Latvian as evil. Thankfully the Russian speaking Riga Mayor Ushakovs has turned out to be a likable and normal human being with both good and bad sides who just wants to get the job done properly. Businesses of course don't care at all about language, they just want the cheapest worker for the job (I wrote "best" and then realised that this was not true at all - talent still has no meaning here!). Lets hope that a 3 language state is a true bonus from the crisis.

But Russia deserves a mention. As a country it seems unable to behave sensibly when dealing with the Balts. The queues of lorries delayed at the Russian border crossing is a Russian national disgrace. Sending a spy plane to overfly Latvia was also stupid and frankly childish. Lets hope that 2010 sees some common sense and graciousness from the big neighbour. But I won't hold my breath.

And Latvian servicemen and women continue to serve abroad with great distinction and praise. We all owe them a great deal.

The highlight of the year was of course the spoof Mazsalaca meteorite. It brought fame - and a large muddy hole to Northern Latvia. On TV, Interior Minister Linda Murniece tried hard and failed to defend the overserious actions of the police and customs. Everyone enjoyed the very good and funny joke perpetrated by Tele 2 except her. It nearly cost her her job. Tele 2 now totally dominate the airways with outstanding adverts showing that the best of Latvian business is as good as anywhere. If more companies could deliver this vitality, Latvia would soon leave recession.

But what about trends. The black market is back with a vengeance, partially forced there by sheer determination of people and companies to survive and partly because of the incompetence of the government tax structure penalising work and effort. It will be hard to recover honesty. The loss of people from the country will also further reduce tax income and may stunt growth later as firms fight for good workers. Morale is also low but the nation seems set on enduring rather than protesting. If it continues calm as the 2010 budget bites it really will be a miracle. And there are still a few people hell bent on screwing the country for every penny they can get. Corruption is becoming less acceptable but there are still large numbers who either do not care or don't recognise it as wrong at all. But at least shops seem to have stopped closing.

What marks the year for me - I think the friendships gained in common adversity. As I try to make my business work, I am surrounded by friends and colleagues working to reduce the effects of the crisis. Many are unemployed or are trying as hard as me to survive in business. Latvia is full of good people and I am meeting more every day. Lets hope 2010 works for those who deserve it.

West to the sun - or East to goodness knows what?

This afternoon I had a long phone call from a Latvian who liked my Blogs. It was good natured and educative. But I had a strange feeling from his words that I am inhabiting a strange parallel world here in Riga that many Latvians do not see. Everyone and everything was to blame except normal Latvians for the crisis. I could easily blame the Latvian language. When you translate Articles, Blogs and comments it is clear that no one here knows how to say anything straightforward. The future is never discussed. We go through every historical twist and turn, every shred of irony and call on every allegory we can think of. Every politician stinks, is to blame for something and is dishonest. Or worse all are secret Skele or Lembergs moles under deep deep cover to re-emerge like butterflies from the chrysalis at some later time. Emerging of course to return the country to darkness. And the EU and IMF are totally to blame for all this. No Latvian ever seems to blame themselves, even those who voted for the most corrupt. The language mix is simply impossible to follow for a foreigner. No wonder the Russian speakers stick to Russian to communicate.

But I wonder if we are not reaching a point where something here has to change. This week the Finance Minister Einars Repse has tried (or has actually succeeded - we have to wait and see) to sack the head of the State Revenue Service, Dzintars Jakans. The man has actually been dragging his feet badly on reform. This could be for many reasons and the conspiracy theorists will find loads, but I suspect that he is another past political appointee who like many in power simply has no clue what to do at all. Reform = cuts, doesn't it? The Peoples Party aided by the Goons and Farmers want to use this sacking as an excuse to bring down the government, but conveniently they say they will wait until after the budget is finished at the end of the year. I don't think they know how stupid and weak that makes them look. They had all day Friday to act if they thought they had a real case, but they showed what cowards they are by doing nothing. I guess that's because they know the only person who can do the real budget work is Repse and they have to wait until he is finished.

The real opposition forces in the form of the Oligarchs have been plotting too and Lembergs, Slessers and Skele (he came back the week before last amid trumpets, dancing girls and ribbons to save us all) have formed a new political Axis. Perhaps in half hearted opposition, former President VVF has also thrown her political hat into the ring and started with education reform. The comments were mixed. Many were saying thank God she is back whilst others were more vitriolic about the "Canadian" noting that she was in charge during the 7 fat years and did nothing. Mind she is not an economist!

So what next. If the coalition is going to fall we could be seeing a major turning point in Latvian politics. The end game might be closer than we think. A left turn to corruption and closer ties with Russia, or a right turn to honest government and a chance of a better future. The choice might just come down to the stubbornness of Repse and the decisions of the President. But it is clear that whoever holds the levers of power as we go into the election next summer will have the scope to bribe and fool the population. The big prize is to steal the EU and IMF money - and there are those who eye this greedily.

Sadly, I suspect that good Latvians will wait much longer before they really fight back. They would much rather sing their way to democracy than be active. But that will not work this time folks. The enemy are Latvians too and understand the weakness of this. Those in the countryside just hope the IMF or EU will come on white horses and save them. The Russian speakers keep their heads down and try to get by or even earn enough to live well. Latvian weakness is their political opportunity. And the forces of evil will rub their hands with glee as Latvia becomes more like a failed African state every day. They know that if good men and women continue to do nothing they will be the eventual winners.

And all the while, Russia waits and watches like a hungry vulture.