Latvians to be able to travel to US without visa... maybe, someday

On Friday, US Congress passed a security law that, among other things, expands the Visa Waiver program, which allows people from certain countries to visit United States without having to go to US embassy and obtain a US visa before their visit. Currently, there are 27 countries in the program (most of Western Europe and a few other countries, such as Australia, New Zealand, Japan).

Originally, Bush administration intended the expansion as a reward to Eastern European countries which supported US war in Iraq in 2003. Negotiations between Bush administration and US Congress took a while, with US Congress trying to set limits on how the program can be expanded and Bush administration trying to write the rules so that they would be the party which decides.

The new law says:

(1) the United States should modernize the visa waiver program by simultaneously--
(A) enhancing program security requirements; and
(B) extending visa-free travel privileges to nationals of foreign countries that are allies in the war on terrorism.

The law then defines the requirements for the new program. The most important benchmark is the percentage of visa applications from a country that are denied under the present system. If less than 10% of visa applications are denied, the country becomes eligible for visa-free travel. Alternatively, if more than 10% of applications are denied but the percentage of visitors to US who stay in US illegally instead of going back at the end of their visit is very small, the country may also be eligible. (US will define the numerical value of "very small" later.)

It's less than Latvia has hoped for. Only two Eastern European nations qualify under the "10% rule": Czech Republic and Estonia. A few others have slightly more than 10% visa denials. Hungary has 12% and Latvia has 15%. Poland has more than 25% denial rate.

Well, Latvia probably will not become eligible for visa-free travel in the first year of the new program. Maybe in 2008, maybe in 2010. Maybe under the next US President. (Democratic presidential candidate Barack Obama has been quite supportive of visa-free travel for Eastern Europeans.) But it is a step forward.

Getting US visa can be a quite painful. While researching this blog post, I came across this story from Hungary. A researcher at Central European University went to US Embassy in Hungary and this what the rant that she heard from the US consul:

You work in an archive? Who wants to archive those dismal TV shows and cartoons? Anyway, it's beyond reasoning why they spend taxpayers' money on archiving programs that nobody is interested in. It's unbelievable that the CEU [Central European University] is spending money to preserve old photos, old nonsense, TV rubbish, spending money on sending people here and there, instead of helping Africans by sending aid.

It's a humiliating story and I have heard similar ones from friends in Latvia. It seems that the way how US embassy staff treat visa applicants depends on the personality of the visa official (or even what mood the official is on a given day) at least as much as the actual visa application.

I'll have to do at least one US visa application for a work trip before Latvians become eligible for visa-free travel. And I'm not looking forward to it.

UPDATE (4/8): According to Artis Pabriks (Latvia's minister of foreign affairs), it should take about one and half more years until Latvians can travel to US without visas. That would be the end of 2008 or early in 2009.

Added to the blogroll

Latvian Economy Watch, by Edward Hugh, Catalan/British economist who also has weblogs on economies of various other countries (Hungary, in particular) and contributes to A Fistful of Euros.

Latvian banker complains about the real estate bubble

In an interview to Baltic Business Service, Latvian banker Ainars Ozols (the chairman of the board of SEB Latvijas Unibanka) complains about some effects of the real estate boom in Latvia:

The real estate industry has spoiled the [business] people because they no longer have to think how to earn money. They can just buy a house and land and then resell for me. That's all the business. No need for innovative ideas, no need for effort. This is not normal for long-term development.

Ozols also said that he would like to be optimistic and that, in past, Latvian businesses have been able to adjust rapidly when needed (for example, after the 1998 Russian financial crisis which had substantial effect on Latvia).

Meanwhile, a real estate analyst from the "Arco" company predicts 8-12% drop in the prices of Soviet-era apartments in Riga but no drop in the prices of newly constructed ones. The full report from Arco is here. It's only in Latvian but it has a lot of interesting information. For example, I didn't realize that the number of newly built apartment is still only half of what it was in 1990, at the end of Soviet period! The "current construction boom" is less of a boom that people think....

Misbehaving tourists

This story has been all around the Latvian news for the last few days and now it starts showing up in English-language media as well:

Flashing when wearing a kilt is a bad idea

Well, flashing one's private parts in public is a bad idea, even if one is not wearing a kilt. And flashing them in another country, on the steps of that country's most important monument... that's much worse.

And that's what happened. A drunk Scottish tourist flashed passers-by near the Freedom Monument in Riga, Latvia.

Latvia has had a major influx of tourists in last few years. Hundreds of thousands of them every year. And there is a tiny number of them that would do something as outrageous as this. But, if it happens, it makes news in Latvia. And Latvian public is fairly sensitive to such misbehaviour, particularly if it involves the Freedom Monument...

British embassy did a "Responsible Tourism" campaign this spring but it appears that people who listen to "Responsible Tourism" campaigns are mostly the ones who would behave responsibly anyway...

Travel stories on Latvia

There have been several articles on travel to Latvia in American press this week:

• A Baltic primer (Estonia, Lithuania and Latvia -- and especially their lively capitals -- are flourishing in the post-Soviet era) - in San Francisco Chronicle
• Touring the Baltic - in Newsweek
• Riga: The Curtain Rises - in Washington Post

All the articles are fairly good. The article from Washington Post is the most detailed one. It touches history of Latvia, nightlife, achitecture, arts and culture. And it concludes by saying:

Edging away from the crowd, I took a moment to behold the attractive cityscape and began to imagine neon lights covering the baroque facades, and nightclubs overtaking the quiet cafes and restaurants. Perhaps I'm wrong; maybe Riga will hold on to its special Old World splendor. Authorities have already taken steps to rein in the revelry a bit.

But just in case, my recommendation: Go now.

Latvia, Estonia, real estate...

Latvia is what Estonia was 2 years ago. I heard that from an Estonian friend who travels to Latvia for work frequently and has had many opportunities to compare the two countries.

Some Estonian politicians try to deny it. When United Nations released its Human Development Index for 1999, Estonia was classified as a "highly developed country" for the first time but Latvia was still in the "medium development" category. That produced some gloating from Estonian politicians (including Toomas Hendrik Ilves?). They proclaimed that this is a sign of fundamental differences between Estonia on one side and Latvia and Lithuania on the other side.

Two years later, in 2001 UN report, Estonia, Latvia and Lithuania were all in "high development" category. And, since then, Latvia's ranking has been the same as Estonia's, with two year delay. (Both countries have been moving up from the bottom of "high development" category towards its middle.)

"Latvia is what Estonia was 2 years ago" is something that one can observe both in statiscal data and rankings and in everyday life. And, now I'm discovering that this pattern also shows up in real estate.

When Soviet Union fall apart, both Estonia and Latvia were quite poor. New construction nearly stopped in both countries. People simply could not afford a new apartment, because of low incomes and lack of bank credit. In Riga, there was not even enough money to finish the construction that was started during the Soviet period and some apartment buildings were standing half-built for 5-7 years.

Meanwhile, the incomes started growing and credit became available. Aparment prices surged up and, in 2002, new construction started picking up again in Estonia (chart on page 14 of this report). Two years later, in 2004, Latvia followed. Since then, the number of new apartments has been growing rapidly in both countries.

Now, I am wondering if "Latvia repeats Estonia" applies to downturns as well. As detailed on Estonian housing bubble blog (in Russian), the housing prices started falling in Estonia at the beginning of this year. The new construction had satured the market of apartments, for people who can afford to buy a place at the present prices. The prices for some Soviet-era apartments have declined by 10% or so. Speculative investors who had earlier signed contracts for not-yet-built apartments now prefer breaking the contract and losing their deposits instead of completing the purchase and getting an apartment which they can't sell. And Estonian banks are making plans for the case if the prices decline by 20% or more.

Since May, the housing prices have been falling in Latvia as well, but by smaller amounts (about 4% so far). A real estate dealer interviewed by Diena newspaper says: "Compared to Estonia, we don't have a panic in Latvia. Sellers rarely allow serious price reductions."

Well, there is that usual delay between events in Estonia and Latvia. Which might be much less than 2 years this time. Developing...

Latvians in Ireland

Over the last years, tens of thousands of Latvians have left Latvia to search for a better life in Ireland. Over there, they would work long hours in jobs that "locals would not take", as farm workers, supermarket cashiers or cleaners. Their income would be below-average by Irish standards but much more than what they would have earned in Latvia.

The story of Latvians in Ireland is known far outside of Latvia. Once, I was approached by an American colleague who had just read about it in New York Times. And there have been stories in other major Western media outlets, like Washington Post and MSNBC.

People have been leaving for Ireland or UK from many countries in Eastern Europe. Poland, Latvia, Lithuania, Slovakia... Out of those, Poland and Latvia are the two that get mentioned in Western media most frequently. Poland, because it's much larger than the other countries and sends the most people abroad. There are more than two million Poles in UK now.

Latvia... I would give most of the credit to one person. Laima Muktupavela. A Latvian writer who went to Ireland , came back and published a novel, Šampinjonu Derība (The Mushroom Testament), in which she describes her experiences working sixteen-hour days on a mushroom farm in Ireland. The book became known in both Latvia and outside and Muktupavela was interviewed by BBC and others. This brought the story of Latvians in Ireland into international spotlight.

It's quite amazing how much difference one writer can make. Without Muktupavela, we would still be having our debates on people leaving for Ireland, but nobody would know that outside of Latvia. In her most recent interview with MSNBC (which is worth reading in full), Muktupavela was asked about the empty farmhouses in eastern Latvia, abandoned by people who have left. She answered:

Five years from now these houses will be full, if people will see .... [a] change of the economic situation.

This is what I would like to think as well.

Latvian real estate/economy update

This is a summary of main economy/finance stories from Latvian language news sources:

1. According to Ober-haus real estate company, the prices of apartments in Riga dropped 1.5% in June. The prices are still 5% higher than at the beginning of 2007. This is similar to the reports by the other major real estate company, Latio, which I quoted in my previous posts. Ober-haus also notes that the number of apartments for sale has decreased, as some disappointed sellers rent their apartments out instead. As a result, the number of apartments for rent has increased by 20%.
2. Starting from last Tuesday, people seeking a credit of more than 12,000 lats (17,000 euros ) are legally required to provide their bank with a letter from State Revenue Service that tells the income on which they have paid taxes. The government has done this to decrease excessive lending, particularly to people who hide part of their income from tax service. In the first week, the revenue service has issued 3,800 such letters. Hmm, this sounds significantly more than the number of credits issued by Latvian banks in a typical week... I infer that people were ready for the new law. We'll have to wait for a while to see the effects of the new law and how much it actually decreases the lending.
   
3. Parex Banka, one of main Latvian banks, is doing quarterly surveys of Latvian businessmen about the current state of Latvian economy and their expectations for the future (on a 0-100 scale). They report that Latvian businesses are becoming more pessimistic about the future, for the second quarter in a row.
4. Meanwhile, some parts of Latvian economy are still booming. New car sales in June increased 38.6% compared to year ago. To compare Latvia with Western Europe, the new car sales per million people in Latvia have now reached 39% of German level. This is more than I would expect, given the quite big income gap between the countries. (And a very big change from 10 years ago, when most cars were imported to Latvia were used cars and hardly anyone was driving a new one.)

Developing... I plan to do summaries of this type about once a week or once in two weeks from now on.

Added to the blogroll

Estonian Housing Bubble. It's in Russian but, if you read Russian, there is a lot of information there, both original commentary and media stories gathered in one place.

Making fun of the president

There are quite a few parody websites making fun of the new Latvian president Valdis Zatlers:

zatlers.blogspot.com
www.zatlers.lv
www.valdiszatlers.com

"Zatlers blog" on blogspot was the first one that cropped up, the next day after Valdis Zatlers was nominated as a candidate for being the Latvian president. The people running it managed to pass it off as "Zatlers' official campaign website" to several newspapers, before the journalists realized it was a parody.

It has grown more and more intricate since then. The blog now purports to detail the life of a fictional character, "Zaldis Vatlers" who is "the chief resident of Latvia". And it's supposedly run by "Vatlera Draugu Kopa (VDK)" which translates to "Vatlers' Group of Friends" but, most importantly, abbreviates to VDK... which is also the Latvian abbreviation for KGB. The site is non-sensical but funny... those who know Latvian can go and read it.

It's quite a change from our past president, Vaira Vike-Freiberga. She was an authority figure who was almost always right. VVF was to be worshipped, rather than made fun of. Zatlers looks different:


Zatlers has his flows. His scandal with gifts that he received as a doctor. The scandal has died out by now and opinion polls say that only 17% of Latvians have a negative opinion of Zatlers. The remaining 83% either approve of him or are going to wait and see how he turns out as the president. Nevertheless, I doubt he will ever become Vike-Freiberga-like "moral authority" figure. Zatlers will be like most of our politicians - to be made fun of, even if he ends up being relatively popular.

Latvian housing bubble, part 4

Latvia may be having a housing bubble and the prices have started dropping slightly (4% in the last two months). How far could they drop?

First, Latvia has a lot of people who would want a bigger apartment. According to this study by the Bank of Latvia, the levels of apartment space per person in Riga are lower than in both Tallinn and Vilnius. And even if the present construction boom continues at the current rate, it will take 8.6 years to reach the current level of Tallinn.

The problem is the prices that people are willing to pay. According to the same study, the price of 1m² in Riga is 3.5 times the average monthly salary. That is more than in any other European country for which they have data. (The next most expensive country is Spain, with 1m²=3 times the monthly salary.) They also counted the number of people who need a bigger place and are able to qualify the loan at the present prices. The conclusion? If not for people who are buying property for investment or to rent it out, Latvia would have run out of mortgage applicants in 6 months after the study. (Maybe slightly more, if one includes people with "unofficial" incomes which are not declared to tax service, but not much more.)

The other key variable is the credit availability. As I wrote, the home loans are mostly funded by money borrowed from abroad and Latvian banks have been borrowing abroad a lot. The continued willingness of foreign banks to lend ever-larger amounts is questionable. I suspect this is, actually, the most important constraint.

About 50% of loans are funded by local savings. The remaining 50% are borrowed from abroad. If the inflows of credits from abroad decrease by 25-50%, that means that the amount of money available for credits decreases by 12.5-25% of what it was at the peak of the lending boom.

In the first approximation, I would guess 12.5-25% decrease in prices based on that. It may be less because some people would withdraw their apartment from sale, instead of selling them for less. On the other hand, the new housing projects are being finished now and when they are ready, the number of apartments will increase and this will press the prices of existing apartments down. (This is already happening in Estonia.)

This is all my guesswork. (Do not regard this as an investment advice!) I'd love to hear what other people think.

Added to the blogroll

FotoLat, a photo blog about Latvia. I found it when the author commented on one of real estate posts!

Baltic real estate update

To those who are following the developments in Baltic housing markets via this blog... Here is a news story from Eesti Paevaleht, one of major Estonian newspapers (via Latvian news agency LETA).

To summarize the article, Estonia has been having a housing boom as well... Lots of new construction. People reserving apartments in the to-be-built buildings with hope to resell them quickly and make quick money. Now, the new projects are built and the speculators are discovering that they can't resell the apartments for the price they hoped. It has gotten so bad that some of them prefer to walk away and lose the deposit that they paid to the developer (9000-25000 US dollars) rather than end up with a place that they can't resell.

Meanwhile, in Latvia, ... a real estate magazine did an investigation whether the apartment sellers have lowered the prices. They took 23 real estate ads from March and called up the sellers. 8 of them had sold their apartments, 4 had decided not to sell because they couldn't find a buyer who was willing to pay the price. The remaining 11 were still for sale and 9 of 11 sellers were ready to lower the prices... but only by small amounts, from 1% to 5.5%. No signs of big drop in prices.

Developing...

Sun flowers for the president

Before the World War II, Latvian fortune-teller Eizens Finks made a prophecy about the future of his country. I'm not sure about the exact wording but it involved a female leader leading Latvia into a new age of prosperity.

It was a bold prediction for that time. In the first three elections of 1920s Latvia, no female candidate was elected to the parliament. In the fourth election, there was exactly one women elected, out of 100 members of the parliament.

I don't believe in fortune-telling. But it seems that Finks' prophesy has come true, by a strange turn of fate. Eight years ago, in 1999, a deadlocked Latvian parliament chose a vaguely known academic, Vaira Vike-Freiberga, as the compromise candidate for the presidency. Yesterday was the last day of her second term as the president.

Vaira Vike-Freiberga has surpassed all expectations that we had about her. (OK, the public was very skeptical and cynical about politicians in 1999 and we might not had much expectations at all... But if we had had expectations in 1999, she would have still surpassed them!)

VairaVike-Freiberga believed in Latvia, at the time when many people did not. As she said in her second inauguration speech:

Every nation has its uniqueness, its beauty and its special value and we can say that about our own Latvia as well.

We are rich in our diversity, we are rich in everything that we have experienced in both sunny days and also dark and dreary days.

We can all shape future in such a way that we will be proud of.

As the president, Vaira Vike-Freiberga was the most passionate advocate of Latvia that we had ever seen. She was great at explaining our history and our aspirations to the world outside Latvia. And, I think, it was her belief in Latvia that made her such an outstanding advocate for our country.

We often complain about our politicians wasting too much money for trips abroad. Well, Vike-Freiberga went to 180 visits abroad in 8 years (probably more than anyone else) and nobody complained. Because we knew that she was there to articulate Latvian causes.

Latvia has gone a long way in 8 years of Vaira Vike-Freiberga presidency. In 1999, we had to argue to be included into the expansion of European Union. Now, the borders between Latvia and the EU have essentially disappeared. Our economy has grown tremendously and, even if we fall back due to the present economic bubble crashing... we are not going to fall back to where we were in 1999.

The standards for political integrity have also grown. It may be lost in the daily arguments about corruption scandals but Latvia is certainly moving forward. As Vaira Vike-Freiberga said in her last interview as the president:

Our country still has many people whose ethics standards don't match what we would like to see and we should continue the fight against that. It's not a one-day task, we won't be able to check "corruption has been eliminated" on our daily planner in one day.

But I am optimistic that our country can move forward.

And she has certainly done a lot to set higher standards for our politicians! Vaira Vike-Freiberga has promised to stay around and continue her work as an advocate for Latvian causes abroad. As she said in a TV interview yesterday, "I am saying bye as the president but I'll say see-you-later as Vaira Vike-Freiberga".

Note: The title of this post refers to the thank-you event "Sun Flowers for the President" organized one of our newspapers week ago. Here is a photo report from the event.

Latvia's forgotten referendum

Tomorrow, Latvians will vote in a referendum. I haven't been writing about it much because the whole matter leaves me perplexed.

First, the history. On March 1, our parliament passed the amendments to two laws: The National Security Law and The Law on Security Institutions. Immediately after, the president Vaira Vike-Freiberga invoked a previously unused clause of Latvian constitution that lets the president to suspend a newly passed law for two months. If during the two months, a sufficient number of signatures (at least 10% of Latvian citizens with the right to vote) is gathered, a referendum is held.

The president accused the "oligarchs" in trying to gain the control over the security institutions and said that she was worried about NATO secrets falling into the wrong hands. That was enough to get signatures of 14.41% of Latvian citizens, resulting in tomorrow's referendum. Here is a conversation over the phone that I had with one of my friends who signed:

FRIEND: I signed the referendum petition today.
ME: Did you read what the controversial laws actually say?
FRIEND: No, but I've heard they are really bad.

This was fairly typical. I tried reading them and it left me perplexed. This is one law and this is the other one (both links in Latvian). The most serious change appears to be adding this sentence to the existing law:

For the parliamentary oversight, the members of National Security Committee of Saeima (the Latvian parliament), together with persons who have been authorized by the committee and who possess the top category clearance for access to national secrets, have the right to conduct examinations of national security institutions, to access the necessary information and documents, except for information about secret sources, to interview employees of national security institutions, to verify the legality and the necessity of conducted intelligence and countrintelligence operations.

I'm wondering what are the standards of other countries on this. Do the parliaments usually have the oversight or not? Unfortunately, the Latvian debate on the laws never got to this question.

The debate was just mudslinging about the evil conspiracy to gain access to the state secrets. Well, if we can't trust members of parliament who have top category security clearance, we might be in deep trouble anyway. (Of course, that assumes that Latvian security services actually possess some valuable information and I'm not sure about that, either.) On the other side, I generally trust Vike-Freiberga when she makes a claim that something is wrong in a major way...

As I said twice before, I am perplexed. But the number of signatures was enough for a referendum. To avoid being humiliated by a referendum loss, the government invalidated the two laws before the referendum. So, now we have a referendum on whether to abolish two laws that have already been abolished.

The people who hate the current government will regard this as a chance to show that they hate it, by voting the abolish the laws. The president has called on everyone else to vote. What comes out of it and what is the big picture... who knows?

UPDATE (7/8): The referendum is now over. According to preliminary results, about 23% of eligible voters showed up to vote. (For comparison, the turnout in the last parliamentary election was 61.88%.) Out of those who voted, 95.7% supported repealing one of two laws and 95.8% supported repealing the other.

Because of the low turnout, the result is not legally binding. This means that the two laws have only been repealed once (by the parliament) instead of being repealed twice (by both parliament and referendum).

New Era Party (which is in opposition) believes that the referendum's result shows that the government lacks popular trust. They've called for resignation of prime minister. Well, New Era Party seems to be using every chance to call for someone's resignation this summer...

Latvian architect honoured

While researching my real estate posts, I came across this...

American Institute of Architects has compiled a list "America's Favorite Architecture" consisting of 150 all-time best buildings in United States. (The list has 150 buildings because this professional organization is celebrating its 150th anniversary this year.)

The list contains two buildings designed by Latvian American architect Gunars Birkerts: the University of Michigan Law School Addition (at #93) and the Museum of Glass in Corning, New York (at #136).

It's always nice to see another Latvian achieving something major in their profession. Birkerts also designed the project for the new Latvian National Library (aka "The Castle of Light"):It was a real honour to have the famous architect design a building for his homeland. Our politicians, however, are still arguing about the money for actually building it.

Latvian housing bubble, part 3

Latvia is probably having a housing bubble now, with apartment prices having increased 61.2% in one year. This bubble has been largely fueled by money borrowed by Latvian banks from abroad. What will happen next?

Some people say that the housing prices in Latvia will only keep rising, since the average living conditions are worse than in Western Europe and there are so many people who would like a bigger apartment or house. True, but... the apartment purchases are typically financed by credits from banks and those credits are often financed by Latvian banks borrowing from abroad.

There are two possible events that could decrease the availability of credit (thus bringing down the housing prices):

1. Increase in the interest rates;
2. Stricter lending standards.
   

There is no signs of interest rates increasing but there are reports that Latvian banks are turning down mortgage applicants in larger numbers. An article today says that the amount of money issued in home loans in May was 20% less than in the first months of 2007.

Over the last months, there has been an increasing number of warning signs about Latvian economy. Articles in Latvian and international press, statements by Bank of Latvia. I suspect banks have reacted to that by pursuing more cautious credit policy. Latvian government is also trying to push banks in the same direction, by introducing stricter regulations on credit.

The last two months (May and June) have seen the first declines in housing prices, by 1% and 3.5%. A new report by Latio real estate company says that the number of housing sales has declined 15% in May (compared to April), due to lack of buyers who are willing/able to pay the requested prices. Some sellers are lowering prices, others are waiting.

The real estate companies say that 10-15% drop in prices is possible but they don't expect more than that. Developing...

In the news: Latvian housing market and economy

Real estate company Latio informs that apartment prices in Riga have decreased by 3.5% in June. This follows a slightly less than 1% decline in May. It's a bit early to make conclusions based on two month data but the hot real estate market in Latvia may be cooling down.

Meanwhile, multiple economists are sounding alarm about the overall state of the Latvian economy (e.g. Latvian banks borrowing too much money from abroad):

• Latvian language news story: Danske Bank: The fast economic growth in Latvia may end in crash.
• English language blog analysis from Edward Hugh: shorter summary version, detailed economic analysis, analysis of demographic aspects.