Friday, September 28, 2007

Back to Latvia

I have returned to Latvia, after being in North America for a very long time. I will continue blogging and I might even keep "Latvian abroad" as the name for my blog, since being away from Latvia has shaped my opinions and beliefs to a substantial degree.

The topics for the blog will stay the same: Latvian economy, society and politics. Now, when I'm in Latvia, I might add some pictures from here to my blog.

Thursday, September 27, 2007

September real estate numbers

The Latvian real estate bubble continues deflating. Balsts real estate company estimates that the average Soviet-era apartment price in Riga is now 1557 euros/m2, 2% less than in August. Combined with 12% decline in previous 4 months, this means that the prices are 14% off the peak level achieved in April. The real estate speculation is now moving on to Bulgaria and other countries in Southeastern Europe. (Even Latvian real estate portals are advertizing properties in Bulgaria a lot.)

However, the prices are still up 2% compared to January 2007, up 20% compared to August 2006 and up 90% compared to August 2005. The real estate prices were growing extremely fast for the last few years and, in comparison to that, the current decline has been quite slow.

There is a potential for further price declines. The prices for newly built apartments in Riga are substantially higher than in other Baltic capitals or even Latvian towns at just 20km distance from Riga. The most likely explanation is that much of new construction in Riga has been priced according to what buyers would pay at the peak of the bubble (rather than the actual construction costs). I suspect some of new construction prices includes profits of 20% or so.

As buyers and banks become more cautious, the developers may end up settling for smaller profits and lowering the prices. Having newer apartments at lower prices would then bring down the prices for older apartments as well...


Tuesday, September 25, 2007

Latvians in Ireland and UK, the numbers, part 3

Earlier, I did two posts on the number of people who have left Latvia for Ireland and UK. To summarize them briefly, Latvia lacks reliable statistics on this topic. Latvian statistics office only records the people who report their move to the authorities, obtaining a number of about 5,000 emigrants per year which is a major underestimate. Newspapers occasionally claim 100,000 or even 200,000 emigrants from Latvia to UK and Ireland and, in neighbouring Lithuania, one source has claimed that 500,000 Lithuanians have left for a better life abroad.

To find some reliable numbers, I looked at the statistics from UK and Ireland. Both of them maintain detailed records of how many Eastern Europeans arrived to work there. There are 25,956 Latvians who have registered with Irish authorities from May 2004 (the date when Latvia joined EU) and July 2007 (the most recent month for which they have data). UK reports 34,460 Latvian workers arriving there up to end of June 2007. Those are substantial numbers of people, although they are less than the wildest claims by media.

Also, looking for a better life in Ireland or UK is far from being specific to Latvians. There are substantial numbers of Poles, Slovaks, Lithuanians there, as well. Latvia, however, has the second highest emigration rate in EU8. (Lithuania is the only country with a higher emigration rate.) By breaking down the numbers by year, we can see that the emigration is rapidly decreasing and the number of people who left Latvia in 2007 only a half of what it was in 2005.

Irish and UK data have one thing missing in them. Both countries register people who arrive there. They don't record whether those people are still there or not. So, we know that there were 60,000 Latvians who worked in UK or Ireland at some point... but some of them may be back in Latvia now.

Now, there is a new set of data. In April 2006, Ireland had a census, recording everyone who was in the country on the census day. Here are the numbers:
55,076 Poles
19,912 Lithuanians
11,105 Latvians
7,377 Slovaks
4,371 Czechs
2,994 Hungarians
The number of Estonians and Slovaks was too small to make the press release. Comparing those numbers with the registration statistics, we see that 62% of Latvians who registered with Irish authorities were still there on the Census Day. For other countries, the similar percentage ranged from 38% (Slovakia) to 64% (Czech Republic).

Quite a few of those people who move to Ireland, stay there. But quite a few people also return to Latvia (or Poland and Estonia). Sometimes, the life in Ireland only looks better from a distance.

The data is from the last year. If the same trend is still true today, the number of Latvians who have moved to UK or Ireland and are still there, should be in the 30,000-40,000 range. Substantial but far from 100,000 numbers that get thrown around in the news.

Sunday, September 23, 2007

They nominated whom?

Latvia is going to have a new speaker of the parliament. And, if the coalition which has governed Latvia for the last year does not break up in the next 20 hours, it will be Gundars Daudze.

You have never heard of him? Neither have I.

The previous speaker of the parliament, Indulis Emsis, resigned on Friday, after prosecutor's office started a criminal investigation about him giving a false testimony in some Ventspils-related matter. Neither Emsis nor prosecutors are commenting on the matter. (Prosecutor's position is "We do not comment on ongoing investigations". Emsis' position is "I've never given a false testimony, on any matter." In the process, Emsis made a few colourful quotes. One of those was translated to English by Aleks. In another quote, Emsis compared himself to a mouse being chased by a cat.)

Prior to his resignation, Emsis had a long political career. From an enviromental activist in late 1980s, to Minister for Environment in 1990s (he was quite popular in that position) Prime Minister in 2004 and speaker of Saeima in 2006 and 2007 (he was less successful in those positions).

The new nominee is a complete unknown. The Union of Farmers and Greens, the party of Emsis and Daudze, has 18 members of the Latvian parliament. Out of those 18, there are 12 I've heard about before. The party decided to nominate one of the other 6. Daudze has served in the parliament for slightly less than a year and has been a doctor before. Google search turns up a few articles in which he's commenting on medical matters and not much else.

That reminds me of another Latvian doctor, Valdis Zatlers, who went from a complete unknown to President in 7 weeks. Given the mudslinging nature of recent Latvian politics, Latvian political parties are increasingly nominating unknowns for country's top positions, in hope that opposition will find it more difficult to find dirt about a person who has not been in politics for long.

A little more and we'll have an entire government consisting of political unknowns... actually, I already had that feeling in 2004 when Kalvitis' government was announced.

Friday, September 21, 2007

Return of the Soviet Union

Paul Goble has an interesting story about how the Soviet Union is coming back to Russian Internet. That is, an increasing number of Russian websites choose to have .SU (Soviet Union) extension instead of the normal .RU (Russia).

For example, the website of Putin's youth organization, Nashi is at, instead of They are still longing for the old Soviet Union. And, with Russia becoming more assertive militarily, it gets a bit scary...

Thursday, September 20, 2007

Inflation gap between the three Baltic states

Inflation is the top economic story in Latvian news these days. (Large current account deficits are harder to explain to general public.) The year-on-year inflation just topped 10% and, in a call-in poll of "Kas notiek Latvijā?" TV show, 97% answered that think the government should resign. (Call-in polls are not scientific and "Kas notiek Latvijā?" audience may skew significantly more to pro-opposition side than general Latvian population. Nevertheless, that sentiment is widespread, even if it's not 97% in general population.)

Inflation has been rising in both of other Baltic countries, but significantly less. It's now 5.5% in Lithuania and 6.4% in Estonia. Why Latvia?

There are a few factors that get mentioned all the time and one that gets overlooked. The currencies of the three countries had their exchange rate to Euro fixed at different times. Estonia fixed the exchange rate to German mark which became Euro. Latvia had a peg to a currency basket and switched to Euro peg in December 2004, in preparation for the switch to Euro (which is indefinitely postponed now). Lithuania fixed the rate to dollar and then switched to Euro in early 2002.

Latvia happened to switch at the time when Euro was very high compared to other currencies. Lithuania switched when Euro was around its lowest point ever.

It made quite a difference. Latvian exchange rate is 1Euro=0.70 lats. If Latvia had switched at the same time as Lithuania, it would have been 1Euro=0.55 lats. If Latvia had pursued the Estonian strategy of pegging to Euro from the beginning, it would have been around 1Euro=0.60 lats. By switching in 2004, Latvia unintentionally devaluated its currency, pushing both prices and salaries in euros down by 15-20% from what they would have otherwise been. As a result, the gap between Latvian and EU salaries became bigger than in the other two countries. With bigger gap, the rise in salaries and prices has been bigger.

I wish I could figure out how much of the inflation gap between Latvia and the other two Baltics is due to this effect and how much is due to other reasons...

Amusing entry on my visitor counter

Someone from European Central Bank came to this blog, searching for "bear Latvia Estonia". They found my entry on the chocolate bear.

I'm still wondering if they were looking for information on the chocolate bear or the type of bears that could cause a financial crisis in Latvia...

Wednesday, September 19, 2007

Latvian government finally does something!

For the last few weeks, I've been quite disappointed with the Latvian government. Prime Minister calling people to save more and spend less and, at the same time, parliament and president's office unveiling 2008 budget requests that included major pay increases for their staff. According to their logic, everyone is supposed to spend less, except for people who work in the parliament or president's office...

Latvian press was also upset (including newspapers that usually support the current coalition). As a result, on Monday, the prime minister Kalvitis came out with a sharp criticism of pay raise requests by the parliament and president's office.

Moreover, Kalvitis revealed a new set of austerity measures, which may include limiting the pay increases across the entire public sector to the inflation rate for 5 years, to create a budget surplus that would help Latvia withstand possible financial storms.

It's a major change. EU, IMF and others have been calling Latvia to restrain spending and form a sizeable budget surplus for at least half year. In response, Kalvitis government has been trying to create an appearance of doing something without actually doing much. Now, Kalvitis government is doing something substantial for the first time.

They are already running into opposition. Parliament is complaining that their staff is underpaid and need 26% pay increase. Other government offices are complaining about the plans to review their spending, as well. And, if the pay freeze extends to teachers and doctors, we may see strikes or people just leaving schools and hospitals. (Unlike already overpaid staffers at president's office, they actually need pay raises and I hope the government does not let the classrooms be empty and patients untreated.)

My opinion of Kalvitis' government is now a bit higher than a week ago. But it may take a few more rounds of public criticism to get them to do what they should be doing.

Friday, September 14, 2007

Thursday, September 13, 2007

This week's Latvian economy statistics

Latvian exports in July increased by 23.7% compared to last year, to 328.3 mln lats (470 mln euros), while imports increased by 39.3%, to 717.5 mln lats (1.02 bln euros). So, the Latvian trade deficit sets another record and Latvia is now importing 2.2 times more than it's exporting. My common sense says that this trend can't last for long. But it's lasting longer than I expected. (I was already saying "it can't last like this" 3 years ago when Latvia was importing 1.7 times more than exporting.)

Latvian analysts say that it's even worse, since most of increase in exports has been because of the price increases (15% on average), rather than Latvia actually increasing exports. Well, at least other countries are still buying Latvian products at higher prices.

Meanwhile, the inflation in Latvia is now at 10.1%. Our prime minister is calling people to save more money and spend and borrow less... The rest of the country is busy finding examples how the government itself is not living up to that, to show that the prime minister is a hypocrite. And there is a lot of examples. The current government is quite a PR disaster. (In terms of actual policies, there is not much they can do to decrease the inflation, for reasons described in this post.)

Welcome to Romanian readers

Welcome to all Romanian readers of this blog! Here is the list of all my posts on Latvian housing bubble and here is the list of all my posts on Latvian economy (includes housing bubble posts and other things).

If you know good English-language sources on Romanian housing bubble or Romanian economy in general, let me know. I've heard there are some similarities in what is happening in our countries now. And I'm curious to learn more.

Tuesday, September 11, 2007

Found on the web: about 40 Latvian beers

A story about beer-tasting in Latvia, by British travellers. Conclusion: Latvia has many smaller breweries making interesting beer. Unlike some other countries in the region which primarily have multinational-produced bland beer.

This was found via Baltic Visitor, a blog devoted to travel in Baltics (which I'm adding to my blogroll).

Monday, September 10, 2007

Latvian credit market developments

Latvian economy has experienced fast growth and major inbalances recently (to the point that Latvia is now 1st on the list of countries vulnerable to a financial crisis). This has been largely fueled by large amount of low-interest credit from abroad, most of which has gone into consumption, rather than productive investment.

Latvian-language media have started to break down the role of various banks in this process. This blog post by Gatis Kokins, vice-president of Parex Banka, has a graph of loan portfolio increase for various banks in 2007 vs. increase in deposits by their customers. Two of the Nordic-owned banks (Hansabanka and Nordea) have had loans increasing 4 times as fast as deposits. So, 75% of their borrowing has been financed from abroad.

The print edition of Diena newspaper also has a graph which breaks down the increase in home loans in 2007 by month and bank. There are interesting trends there. Two biggest Scandinavian-owned banks (Hansabanka/Swedbank and SEB Unibanka) have now cut back on lending in a major way. Their loan portfolio increase in July is 3-6 times less than it was in January. Meanwhile, the next two banks (Norwegian owned DnB Nord and Finnish owned Nordea) have increased their lending by about 50%.

When some Nordic-owned banks decides that the Latvian economy is overheating and they should cut back, others view it as a chance to grab a bigger market share. Developing...

Sunday, September 09, 2007

Marches and riots

Over the last week, Latvia saw a controversy over a "Russian March" proposed by several activist groups. On the surface, the Russian March looked like a regular demonstration for the usual ethnically Russian concerns (bigger role for Russian language in Latvia, more liberal citizenship laws, etc.). A closer look revealed several reasons for concern.

First, the event had the same name as a sequence of ultra-nationalist demonstrations in Russia, in 2006 which had often turned violent. And that did not look like a coincidence. One of organizers was Latvian National Democratic Party, lead by Yevgeniy Osipov, a former member of Russian National Unity, a Russian ultra-nationalist organization with neo-Nazi undertones. Reportedly, Osipov used to have a fair amount of neo-Nazi symbols on his webpage a few years ago (which have now been removed).

And even the official poster of the event looked quite threatening, with a violent looking bear under a text "Russians don't surrender!"
Given all that and the recent "Bronze Soldier" riots in Estonia, everyone was weary. Riga City Council decided not to allow the march because of possible violence and the court upheld the decision.

At the end, there was a demonstration in a city park instead of a march. About 150 demonstrators showed up, surrounded by a significantly bigger crowd of bystanders, journalists and police. They chanted "Russians don't surrender" but there was no violence.

The only violence on Saturday unexpectedly came from a different source. About 500 drunk soccer fans from Northern Ireland, in Riga for Latvia-Northern Ireland game. They started by breaking chairs and dishes in outdoor cafes and finished by throwing a brick and other objects at the arriving police cars. Riga has seen some instances of tourist misbehaviour recently but this was by far the worst one.

Luckily, our soccer team managed to punish the North Irish fans for that by winning the game 1-0.

Saturday, September 08, 2007

This week in Latvian economy

S&P has issued a ranking of the countries that are most vulnerable to adverse conditions in international financial markets. Latvia is in the unfortunate 1st place, followed by Iceland, Bulgaria, Turkey and Romania. Lithuania is substantially further down the list. I would be curious to know how Estonia ranks compared to Latvia but, unfortunately, S&P did not include Estonia in the ranking.

I still think my analysis of why Latvia will avoid the worst case scenarios is right, but Latvia being 1st on a list like this is alarming.

Meanwhile, Latvian finance minister says that they intend to have a surplus of 0.2% GDP in the 2008 state budget. IMF and EU had called for a much larger 4% surplus in 2008.

A country which is doing well at the moment but is vulnerable (like Latvia now) should be having a larger surplus so that it has reserves in case if a financial storm hits it. Unfortunately, Latvian government does not see that. There were rumors of some fairly strong austerity measures a few months ago but, given the new budget announcement, those rumors must have been false.

Wednesday, September 05, 2007


Well, it appears that Latvian basketball team is capable of any surprises, including not so good ones.

We were supposed to win Portugal today. Portugal is not exactly a basketball country. Instead, our team was behind for almost the entire game. For first half, they were 3-5 points behind. I was saying to myself: we will catch up. At one point, they did. They had a small lead, for a half-minute or so. But it did not last.

Then, in the fourth quarter, Portugal took a 17-point lead. It was no longer the question who would win. It was the question by how much. If Portugal wins by less than 15 points, Latvia would still have a chance of advancing to the next round if Spain wins Croatia later tonight. If they won by more than 15 points, Latvia would be out immediately.

At the end, it was 77-67 and our basketball team is now waiting for the outcome of Spain-Croatia and pondering how they managed to lose to Portugal for the first time in Latvian basketball history.

UPDATE: Croatia won Spain by one point (with Croatia scoring the winning basket 3 seconds before the game was over) later on Wednesday and Latvia was eliminated. The coach of the Latvian team resigned on Thursday.

Monday, September 03, 2007

We win!

Latvia-Croatia 85:77. First-ever win against Croatia in an official game. Good beginning to Eurobasket 2007!

Sunday, September 02, 2007

August real estate numbers

Balsts real estate company reports that apartment prices in Riga decreased by another 2.9% in August. The housing prices are now 12% below the peak level of April 2007 (but still a lot higher than in a year or two ago). People in Riga say that one recently finished highrise has all windows dark (meaning nobody is actually living there). Developer's website for that highrise shows 25% of apartments as sold or reserved and 75% still available.

Balsts predicts another 3-5% decrease in prices in the next 2 months, followed by stabilization. I expect a bigger decline.

July lending data are out, under the headline "Home loans increase by 75.6% in a year". Monthly data show a different picture, however. The home loans increased by 107 million lats (153 million euro) in July which is considerably less than 140 million lats/month increases in April-June and much less than 187 million lats/month in January-March. The banks are getting worried about the overheating economy and the possible housing bubble and are cutting back on new loans.

At some point, this should result in slowing down the rest of economy, as well. But for now, there is no signs of that yet.