The Latvian Candidate

By bne IntelliNews October 5, 2010

Mike Collier in Riga -

This wasn't in the script. The plot was supposed to be that after taking over Latvia's comic book economy in March 2009, a weak and uninteresting prime minister would try to introduce reforms but would meet stiff resistance from both parliament and people. The situation would get worse and worse and he would get the blame, probably becoming the least popular PM ever in the process.

Then, when things looked like they might start to turn a corner thanks to a global economic revival, a familiar posse of oligarchs and demagogues would step forward, win the election, ride the recovery wave and take all the credit - maybe slipping a few state-owned enterprises into their back pockets along the way.

The patsy was supposed to be the current PM, Valdis Dombrovskis. But in a plot twist worthy of the best political thrillers, the man playing the geeky supporting role has emerged as an unlikely lead - an everyman hero discovering unsuspected reserves of strength, decisiveness and even a hint of charisma. A new government will likely be formed at a parliamentary session on November 2, giving Dombrovskis plenty of time to select which other political forces will be listed in the opening credits of his new administration.

Vote for stability

Dombrovskis' Vienotiba (Unity) bloc stormed the Latvian general election on October 2, securing 31% of the vote and 33 seats in the country's 100-seat parliament or Saeima. "Clearly, voters have voted for stability," Dombrovskis told bne as the results rolled in. "Latvians have rejected populism and that's a very positive signal. Several parties were calling for scrapping our international loan programme and promising all kinds of wonders, but the voters were not really buying it."

The opposition Harmony Centre party, which had been expected to top the poll, came in second with 26% of the vote and 29 MPs, while the third-placed Greens' and Farmers' Union (ZZS) did slightly better than expected with 19% of the vote and 22 MPs. This sets the stage for the continuation of Dombrovskis' current coalition with ZZS and the smaller right-wing Nationalist Alliance bloc. But now instead of being a minority administration with 45 seats, the coalition will have the luxury of a working majority with 63 seats.

Vienotiba's stronger-than-expected showing seems to have been thanks to the media - including bne - drawing attention to the likelihood of Harmony Centre forming a pro-Russian administration.

Time and again on polling day, voters told bne they were making an extra effort to vote because they feared Harmony Centre would be the main beneficiary of apathy. "There are going to be so many Russians voting that it's important for every Latvian to vote as well, even if the choices aren't ideal," said a young voter named Anna in a typical exchange. As a result, turnout was slightly up on elections four years ago at 62%.

Just as significant as the ruling coalition's victory was the manner in which voters spurned the overtures of Par Labu Latvija (For The Good Of Latvia), a big-spending alliance of oligarchs and political fixers whose main campaign strategy was to promise everything to everyone. PLL controlled 26 seats in the old parliament, but will have just eight in the new one. It attracted 7.5% of the vote on election night, the smallest figure of any party represented in parliament. Essentially, it got a good old-fashioned shafting.

Having loudly proclaimed how they were going to work 24 hours a day and sacrifice everything for the good of the country, it will be interesting to see just how long humiliated heavyweights like former president Guntis Ulmanis, two-time PM Andris Skele and Ainars Slesers are prepared to work as obscure back-benchers. Don't hold your breath.

Slesers faces a double bind in that as well as being unable to use parliamentary work as a way of getting out of the house (his wife was elected alongside him), he will also lose his coveted job as chairman of the Riga Port Authority if he does his democratic duty and leaves his current position as deputy mayor of Riga.


A new government will likely be formed at a parliamentary session on November 2, giving plenty of time for political parties to negotiate the fine details of cooperation.

In one intriguing scenario, Harmony Centre would stay as an "opposition" party but be invited to cooperate with the government and get a minister - probably the important Transport portfolio where smoothing things with Russia is a key responsibility. Such a move would infuriate the Nationalist Alliance (which includes a couple of firebrand young MPs who will be hard for party elders to control) and would be an uncharacteristically bold gamble by Dombrovskis, but could mark a significant break with the past and spike claims that the Russian minority is ignored.

Dombrovskis faces challenges closer to home, too. Despite its name, Unity remains a loose alliance of three parties rather than a single entity. The ideological differences between the three are Lilliputian in the extreme, but Latvia's fractious political culture means unless they merge quickly, there is the prospect of drifting apart. bne sources suggest that even before the end of the election campaign, some senior figures within Unity were barely on speaking terms after clashes over issues such as whom to nominate for next year's presidential vote.

The other main danger is that the government gets complacent and eases off on its austerity programme too soon. Signs of recovery are weak at best - not so much "green shoots" as a vegetable patch that may or may not have some carrots beneath it. Around €500m needs to be trimmed from state finances in the 2011 budget if the country is to meet the terms of its €7.5bn international bailout loan, and pressure is building for measures to stimulate the economy rather than strip it back further. "The result offers hope that the coalition can continue with the further fiscal tightening measures and reforms needed to fulfil the conditions of its IMF-led loan programme. But as we have argued before, the measures will act as a significant brake on the domestic recovery. GDP growth looks set to remain below its potential rate of around 4% for a number of years," says Neil Shearing of Capital Economics.

Lenders such as the IMF may even be willing to loosen their conditions a notch now they know they will be dealing with Dombrovskis for the foreseeable future. In a way, they need him almost as much as he needs them: with concerns about a double-dip recession in the world economy refusing to disappear, Dombrovskis' Latvian show reel represents a rare example of IMF intervention resulting in a feel-good movie for all the family.

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