Auditor General Inguna Sudraba

The government must look at the state policy as a whole, rather than view it in terms of accounting, as it is currently done. As long as there is no understanding of the need to adopt long-term decisions, Latvia will not be a national, strong and competitive country. Long-term vision is also necessary in formulating the 2012 state budget so that it is not only a mathematical exercise, the State Auditor General Inguna Sudraba told in an exclusive interview to the news portal BNN.

The Auditor General also talks about the need for the euro in Latvia, what the country should do with airBaltic and other public companies. She also grounds why, in her view, many of Latvians have no spine.

How do you evaluate the 2010 budget and what discrepancies has the State Audit Office found in its latest audits?

In the audit, we answer the question what the 2010 budget policy was like. When comparing the law on budget and its actual implementation, it can be concluded that expenditure exceeds revenues 74% or 387.8 million lats more than stipulated in the legislation. The way the deficit was increased over the year is not unlawful if viewed from the perspective of approved standards, as they did allow increasing spending in certain positions. However, we believe that this is not right, because this increase is not linked to unexpected expenses and emergencies. The substantial increase of several hundreds of million lats was meant for liabilities which were already known before. Therefore, it can be concluded that the budget drafting process neglected the factual situation, for example, the governmental policy and the necessary financial resources.

We found also other factors indicating mismanagement from the part of the government.

What exactly this means for the Latvian economy and what consequences it might have?

The higher the excess, the larger the budget deficit and the debt. This means that the debt, which the government planned in early 2011, grows exactly the amount expenditure exceeded revenue. Moreover, the borrowed money must be repaid. This imposes additional burden and shows the standard of living future generations will have.

Can we say that the budget was drafted in an irresponsible manner?

The process was not managed right indeed. Good management means clear policy that also indicates the necessary resources for reaching goals. At the moment we are living just for today, instead of planning and acting long-term, which would allow to see the possible consequences and correct mistakes timely. This is necessary so that we do not have to pay a high price for them in the future.

Does that mean that we are living just for this one moment and spending what we actually cannot afford?

I can relate to that to a large extent. If I saw long-term plans and goals, then I could say that we are thinking several steps ahead and doing our best to reach our goals. Currently, I see neither motives, nor indicators of what we want to achieve. SAO’s audit shows that the budget performance is not tied to a clearly defined policy.

Can we see this lack of goals also in the management of airBaltic?

Actually, what we have been reading about airBaltic management resembles a micro-model of the state. It is the same short-term thinking. We should have a clear policy and plan why exactly we need such an airline. I can hardly belive it is possible to find oneself in the current situation if there is regular supervision with an aim to monitor whether the company’s activities are aimed at reaching goals.

Do you approve of the government’s decision to invest 57.6 million lats in its national airline? Will this money save airBaltic?

Given the current situation, it is no longer possible to take one and the best decision, because whatever decision is needed to finally put an end to the situation. Each and every state must think of how the economic situation will develop and how the govenrment will be able influence it. I believe that the more public companies the state owns, the better it can manage its economy. It is a great risk to abandon state enterprises in favour of private investors, because they can suddenly decide that it is no longer profitable for them here in Latvia and move to some other country.

It is crucial that the state clearly defines its understanding of what exactly it wants from the company and why it is needed at all.

Maybe the state itself is unaware of what it expects from airBaltic?

In our audit we also propose suggestions in an important matter that we have been discussing for three years already. The state and the govenrment need a single management policy. The state owns huge investments in various companies, but it also needs an understanding what exactly it wants from them so that they function as instruments in implementing the public policy. This does not apply only to airBaltic, but all state enterprises.

Have all the discrepancies found in the previous audits been eliminated and the situation is improving?

The audit is not rounding up once it is closed officially. It ends when our proposals are taken into account, because we continue keeping an eye on the process. 84% of our suggestions are carried out in a medium-term. Usually, most of terms are being extended or the proposals lose their topicality.

The situation is definitely improving in respect to how precise reports are. However, efficient use of resources is still an issue.

Thus, we as the SAO have taken a non-traditional step by drafting proposals for the budget planning and introduction process. They provide responsibility for the way funds are used, as opposed to the current situation when only legal use is what matters. Money needs to be spend efficiently and usefully, not merely spent and that’s it. It is already a permanent issue that the state fails to understand that efficient use of tax payers money is crucial. It is not enough with mere complying with legal norms.

Ministries forecast that they will fail to acquire 40 million lats from EU funds for 2011. Does that suggest wrong planning as well?

Given how EU funds were acquired last year, I can hardly call it funds acquisition at all. Up to tens of million lats were transferred in pre-payments, but the Finance Ministry claims that all funds have been acquired. What we see is that practically it is not so, because funds are just transferred from one account to another.

I do not like this term “acquisition”, because what I understand from it is use of resources, instead of mere transferring of them in order they would no longer be present in the budget report. We can speak of acquisition only when the money is invested in projects that bring further yield. Consequently, maybe even more than these 40 million lats will not be acquired at all.

How could it be possible to control that money flows into the economy and brings yield?

This calls for responsibility for results. For the time being, officials suffice with responsibility of showing an empty bank account in Brussels. If the programme provides that, for example, new jobs will be created if EU funds are acquired, it should be the responsibility of officials to see to it that it really happens.

It is no art to spend money in benefits, scholarships and training programmes with no actual contribution to people, skills and new jobs.

Do you support Unity’s proposal to set up a “rainbow” coalition?

Latvian population makes up only two million people. It is unacceptable that a country with such a small population fails to agree upon a common understanding on the future development of the state. Inner energy currently directed to quarrels and offenses should actually go to the development of the country.

One must not live thinking merely of the fact that it is good today. We must all the time think about what kind of a country we will pass on to future generations.

Economist Raita Karnite once told in an interview to BNN that tough times are ahead of Latvia. Do you believe a double dip recession will hit Latvia?

It is very important to truly perceive the reality and find out timely how to solve problems. If the leading economy – the U.S. cuts consumption, it will definitely hit the whole world. It has been reported that China is losing its growth rates. Consumption keeps decreasing also in Europe. It all leaves an impact on the economy. It is crucial to know the plan according to which we live, so that global economic processes influence us as little as possible.

Will Latvia manage to join the eurozone in 2014 and do we need the single currency at all?

The question whether we need the euro at all depends on the policy we are carrying out. I cannot define strict arguments why we do need the euro. Conditions that accompany the euro introduction are important principles that should be introduced any way, for example, the fact that spending must be in balance with revenues.

I doubt that the euro is what we absolutely need. For the time being, I see only those arguments that are tied to the euro introduction criteria – the debt, deficit and inflation. These factors are important also when on their own – without the euro.

The state needs to see its policy as a whole. It should not perceive budget as a mere mathematical task. As long as there is no understanding of the need to adopt long-term decisions, Latvia will not be a national, strong and competitive country. Long-term vision is also necessary upon formulating the 2012 state budget so that it is not only a mathematical exercise.

Is this our biggest problem why we are in the current situation?

If there were a basic understanding that this is our country and it is us who determine in what type of a country we want to live, certainly there would not be such a situation as it is now. I see that there are few people in Latvia with a spine and able to take responsibility. People’s objectives are very primitive – opportunity to take some post, without understanding that the post is a tool to achieve the country’s goals.

Dans Titavs, board member of the Latvian Exporters and Investors Club, has indicated that the parliamentary election outcome has shown that people are fed up with oligarchs and their anti-campaigners. What conclusions have you made after assessing the election outcome?

Some part of the society no longer has who to vote for. People find it difficult to vote for any of the political forces. They voted for Zatlers Reform Party because they want changes. Maybe they are not even considering how viable such changes actually are. They simply want to believe that it will be better in future.

What do you expect from the new govenrment?

It needs to draft a long-term plan once and for all. The most urgent task is all linked to 2012 budget. However, it should not be a mere mathematical exercise, but a task that calls for in-depth understanding.

Do you believe the government will manage that?

I would like to believe that. I am always hoping for the positive, because negative thinking attracts all the negative.