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Ceturtdiena 22.03.2018 | Name days: Tamāra, Dziedra

NY Times writes about Latvia's experience in fighting the crisis

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When a credit-fueled economic boom turned to bust in this tiny Baltic nation in 2008, Didzis Krumins, who ran a small architectural company, fired his staff one by one and then shut down the business. He watched in dismay as Latvia’s misery deepened under a harsh austerity drive that scythed wages, jobs and state financing for schools and hospitals, writes The New York Times.

But instead of taking to the streets to protest the cuts, Mr. Krumins, whose newborn child, in the meantime, needed major surgery, bought a tractor and began hauling wood to heating plants that needed fuel. Then, as Latvia’s economy began to pull out of its nose-dive, he returned to architecture and today employs 15 people — five more than he had before. “We have a different mentality here,” he said.

In contrast to much of Europe, Latvia today has no tradition of labor activism. “What can you achieve in the street? It is cold and snowing,” Peteris Krigers, president of the Free Trade Union Confederation of Latvia, told NY Times. Organizing strikes, he said, is nearly impossible. “It is seen as shameful for people who earn any salary, no matter how small, to go on strike.”

Hardship has long been common here — and still is. But in just four years, the country has gone from the European Union’s worst economic disaster zone to a model of what the International Monetary Fund hails as the healing properties of deep budget cuts. Latvia’s economy, after shriveling by more than 20 percent from its peak, grew by about 5 percent last year, making it the best performer in the 27-nation European Union. Its budget deficit is down sharply and exports are soaring.

When Latvia’s economy first crumbled, it wrestled with many of the same problems faced since by other troubled European nations: a growing hole in government finances, a banking crisis, falling competitiveness and big debts — though most of these were private rather than public as in Greece.

Latvian businessmen applaud the government’s approach but doubt it would work elsewhere.

“Economics is not a science. Most of it is in people’s heads,” said Normunds Bergs, chief executive of SAF Tehnika, a manufacturer that cut management salaries by 30 percent.

In Greece and Spain, cuts in salaries, jobs and state services have pushed tempers beyond the boiling point, with angry citizens staging frequent protests and strikes. Britain, Portugal, Italy and also Latvia’s neighbor Lithuania, meanwhile, have bubbled with discontent over austerity. But in Latvia, where the government laid off a third of its civil servants, slashed wages for the rest and sharply reduced support for hospitals, people mostly accepted the bitter medicine. Prime Minister Valdis Dombrovskis, who presided over the austerity, was re-elected, not thrown out of office, as many of his counterparts elsewhere have been, NY Times wrote.

NY Times says that Latvian people are used to hardship. After Moscow relinquished control in 1991, decrepit Soviet-era plants shut down, gutting the industrial base. The economy contracted by nearly 50 percent. The collapse of Latvia’s largest bank in 1995 wiped out many people’s savings. Latvia then was hit by debris from Russia’s financial blowout in 1998. Then came a dizzying boom, fueled by a lending splurge by foreign, particularly Swedish, banks, followed by a catastrophic slump as credit froze when the global financial crisis swept into Europe in 2008.

The cuts calmed fears on financial markets that the country was about to go bankrupt, and this meant that the government and private companies could again get the loans they needed to stay afloat. At the same time, private businesses followed the government in slashing wages, which made the country’s labor force more competitive by reducing the prices of its goods. As exports grew, companies began to rehire workers.

According to NY Times, economic gains have still left 30.9 percent of Latvia’s population “severely materially deprived,” according to 2011 data released in December by Eurostat, the European Union’s statistics agency, second only to Bulgaria. Unemployment has fallen from more than 20 percent in early 2010, but was still 14.2 percent in the third quarter of 2012, according to Eurostat, and closer to 17 percent if “discouraged workers” are included. This is far below the more than 25 percent jobless rate in Greece and Spain but a serious problem nonetheless.

“They say the crisis is over, but I don’t feel that,” said Marika Timma, a mother of three whose husband lost his job in construction when the property bubble burst. Ms. Timma used to work as a cleaner but quit when her wages were cut in half, to just $168 a month.

Several of her good friends have emigrated to Britain and Ireland to look for work. “They won’t be coming back,” she said.

Since 2008, Latvia has lost more than 5 percent of its population, mostly young people, to emigration. The recent exodus peaked in 2010, when 42,263 people moved abroad, a huge number in a country of just two million now.


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