The worldwide financial crisis has affected a lot of countries in the world, including the Republic of Latvia. “Latvia may go bankrupt this summer,” “Europe has doomed Latvia to economic collapse” — this is how some world media are assessing the situation in this Baltic country. The press has highlighted peasant revolts that erupted there earlier this year.
Why did a crisis break out in a former Soviet republic that joined the EU and NATO in 2004? What is the way out of this crisis? How did Latvia manage to solve the language problem? This is the subject of an exclusive interview of Atis SJANITS, Ambassador Extraordinary and Plenipotentiary of the Republic of Latvia to Ukraine, given to The Day.
“I think the media are slightly exaggerating. This is like in Ukraine: all grandmothers must have heard of default but do not know what it really means. Likewise, we hear about Latvia’s bankruptcy. As it always happens in real life, this is an exaggeration. I can calm everybody down: there will be no bankruptcy.”
What are the causes behind the crisis?
“We should get back to 2004, when, after the hard 1990s, Latvia saw an unprecedented economic growth, following the accession of Latvia to the EU. Owing to a coincidence of many factors, a great mass of money overflowed the country, and very cheap money at that. That was the EU money and major investments that came to the economy.
“At the same time, there was a sharp of wages in Latvia, which began to compete with the high wages in Western countries practically from the moment we joined the European Union. But the wage rise did not result from higher labor efficiency. Owing to these factors, our GDP grew by an annual 10 percent for four years. I can say that many people reached the European living standards, buying houses and cars on credit. All this was happening in an incredibly easy and rapid fashion.
“Even at that time it seemed somewhat strange to me. I lived in Ottawa, where real estate was cheaper than in Riga. Naturally, this situation could not continue for very long. When the crisis erupted, it dealt a double blow to us. The economy was overheated and all this money went as easily as it came. Real estate prices plummeted to the economically justified levels. As a result, our government faced a situation, when state budget revenues nosedived. We needed financial assistance and we received it. The most important thing in this situation is that there should be a sound-minded political leadership which will say: dear friends, we must live according to our means. I can assure you that there will be no bankruptcy but we should live according to our means. This is normal.”
Can you say who is in fact to blame for this crisis? Many are putting the blame on the US and on the inadequate control over the banking sector.
“My version is as follows. The cheap money became available because there was a huge imbalance between Asia, North America, and Europe. With my own eyes I saw businesses close in Canada and relocate to Asia. If people do not seem to be producing anything, their living standards are supposed to fall.
“I keep telling many young Ukrainian leaders that we are competing with Asia today. And, to earn higher wages than in China, we must have high labor efficiency.
“At the same time, living in a globalized world, we must encourage our commodity producers and our exporters. Latvia began to seriously ponder this. This will be a lesson and a change in the ideology in comparison with the 1990s. At that time our and your businessmen and economists, who had read a few books and had been to some place in the West, concluded that the market would decide everything, while the state should only create good conditions for business. This was the correct ideology in principle. But there is no doubt that the crisis that has erupted will make changes to this ideology. We should take more care of our producers.”
Does this mean a return to protectionism?
“There are very clear-cut rules in the European Union, and there are no possibilities inside the European community for the development of protectionism. But there is a real danger that is not directly linked to protectionism. I would say it is about encouraging our producers within reasonable limits. For they, as well as the service industry, pay taxes and maintain the state. All our talk about public health, education, and culture will have no sense if producers and the service industry are not competitive.
“We must put the question bluntly now: what we can we compete with, what is our future, and where is our niche in worldwide production? I am optimistic and think that our geographical location gives us some natural advantage. I think we will overcome this crisis because our country is not big, it has an open economy, and our labor market is very small. A burgeoning growth of industrial output in past few years forced us to legally import skilled labor, mostly from Ukraine. But now, due to the crisis, the level of unemployment has considerably increased.”
Is the Latvian populace going to support the measures suggested by the new government? Will the January peasant revolts repeat?
“Revolt is too strong a word. In reality, there was a protest rally in January, when a few dozen young people tried to resolve their problems in a violent way. These numbers were something unheard-of for our small and quiet country. While we see this in Western Europe almost every day, it is, of course, something new for us. The ruffians were identified and brought to justice. There is no place to hide in our country. One can and even must protest but only in a non-violent way.
“Now the situation is quite clear. Yesterday (the interview was taken on March 12. — Author) the government resolved to considerably cut down the budget. I think people are well aware that there is no other option. We must live according to our means. Our policy is mostly based on a consensus. Only in this case can we reach a kind of compromise. We decided not to resort to the devaluation of our currency. And, to avoid devaluation, we will have to reduce wages. It is not a simple thing to do. The debate on whether or not to devalue is eternal. There are pluses and minuses here. We have pegged our national currency to the euro with the aim to join the euro zone as soon as possible. Now it is difficult to say if this will happen in 2012, as was originally planned.”
Mr. Sjanits, could you explain why there are such different attitudes to the candidate for the prime minister’s seat? A poll conducted by the Seven News Items program of the Latvian television channel TV5 showed that Latvians consider Valdis Dombrovskis a weak candidate. On the other hand, Joseph Daul, head of the European Parliament’s largest political group, called Dombrovskis one of the most successful and talented politicians in the European Parliament.
“In all probability, the truth is, as always, somewhere in the middle. Time will show how talented he is. It always pleases you to be a boss when you have a possibility to dish out gifts. The hardest thing is when you have to cut something back. Naturally, it is very difficult to make a deal in this situation. But the first stage has been passed. All the parties came to terms yesterday and signed that the budget would be slashed by a certain amount. I see this as certain political responsibility. This inspires optimism in me.”
Are you sure that Latvian parliamentarianism will be able to manage the crisis or perhaps a strongman is needed in this period? For example, in our country there have been many calls for a strongman to restore order.
“Our constitution has been in existence since 1922. So we have a time-tested political system. Our policies are based on a consensus. We are used to a government being formed by three, four or even five parties.
“A strongman is possible in just a few countries. But, in my view, the coming of a strongman is impossible in Ukraine. Your country’s system is specific in its own way. You have no other way than to sit down and make a deal about some concrete reforms. There is no alternative. One should live according to his means.”
Will your country have to borrow new loans from other countries in order to ride out the crisis?
“We have not yet exhausted our credit. And the question is different. But if a country cannot make both ends meet, it will become dependent on somebody — either on the International Monetary Fund that will set its own rules which are in principle a good and wholesome remedy for a country, or from some other states which are ready to give a loan. But we are finishing with what we began: we must meet both ends meet. Then we will be independent, happy and proud of our country.”
Mr. Sjanits, how did your country manage to solve the language problem and have you finally solved it?
“Latvian is our only official language. Approximately one third of the population consider another language, usually Russian, as their mother tongue. Besides, there are 60,000 Ukrainians in Latvia. Under the existing system, Latvian is the language of instruction in schools. The older generation is learning this language on its own. While there was a language-related tension in the 1990s, by now it has evaporated by itself, if I may say so. If someone does not like the language situation, he can move freely to any other European country. I do not think there are many people of this kind because two languages — Latvian and Russian — are functioning in the real-life private sphere. For example, a private company is unlikely to hire you unless you have a command of the Latvian, Russian, and English languages. These three languages will open you the way in the private sector. While the Russian language was taught less in the 1990s, now, on the contrary, it is taught more. It is compulsory to know Latvian if one wishes to work in the public sector. As there are major languages around and one and half a million of citizens consider Latvian their native language, Latvian as a single official language strikes a real balance.
“The essential difference from the situation in Ukraine is that we do not have areas densely populated by the Russian-speaking population. The Russians and the Latvians are intermixed in Latvia. Ukraine will perhaps have its own way of solving this problem.
“Speaking of Canada, there is a language barrier in that country. In spite of billons-worth infusions, only 10 percent of the English-speaking population speaks French. And this figure has not in fact changed over the pat ten years. In Quebec alone, about 40 percent speak two languages — English and French. In reality, there is no language barrier in Ukraine. Two languages naturally coexist here, which is a great plus for your situation.”
What is your country’s attitude to the latest changes in the NATO strategy, particularly, the resumption of a dialogue at the NATO Council — Russia level?
“We are trying to build our relations with Russia on a constructive and pragmatic basis. What concerns our foreign policy, it is well-balanced and takes a broader look at things. Taking into account our geopolitical situation, our real strategic interest is that both organizations, the EU and NATO, should strengthen and prosper for one simple reason: it is important for us, a small country, to have an umbrella. We must never forget this.”
What do you think about Russia’s categorical opposition to NATO’s enlargement and the claims of Moscow that this poses a threat to it?
“This is a simple question. Russia does not have the right to veto the enlargement. As for joining NATO, it is the question of Ukraine itself. Figuratively speaking, the ball is in your court. Russia will never have the right to veto. It is self-understood. And it will be unable to do anything, as it was unable to hinder the Baltic countries whose population unequivocally supported accession to NATO. Ukraine itself should make an unambiguous decision about NATO.”
