Friday, November 30, 2007

Slowdown in Latvian economy

After the dramatic credit cutbacks by major Latvian banks a few months ago, the Latvian economy is clearly slowing down.

At the beginning of this year, at the peak of the Latvian boom, retail sales in Latvia were growing at 28% year-on-year. (It's hard to believe, but it was 28% after adjusting for inflation.) Now, October statistics are out and the increase in retail sales is down to 8.9% year-on-year. And, looking at the monthly data, the October sales are actually down 0.8%, compared to June when the slowdown begun.

The economic trend is clearly changing and the multi-year economic boom is over. It's still not clear if it will be a soft or a hard landing for Latvian economy. The opinions around me differ, with friends closer to real-estate business (which has been affected by the credit cutbacks more than anything else) being the most pessimistic (as in "It can be a vary hard landing").

Monday, November 26, 2007

More anti-inflation protests

Last Saturday, 70,000 Slovenians protested against rising inflation. This weekend saw a similar protest in Vilnius. 4,000 Lithuanians took to streets to protest against high inflation and low wages. This looks like a regional trend now.

Latvian labor unions organized two similar protests against government's budget in October but, although Latvian inflation is now at 13.2%, they gathered a smaller number of people (between 200 and 2,000, depending on whose estimate we believe). There are two possible explanations:
  1. Salary increases in the last years have been sufficient to compensate for inflation, or
  2. Latvians are so indifferent that it takes much more than in other countries until they start protesting.

Sunday, November 25, 2007

Economic news from Slovenia

Global Voices Online links to two stories about Slovenian economy:
- 70,000 Slovenians protest in Ljubljana, demanding higher wages, to compensate for rising inflation;
- The apartment prices in Slovenia have been rapidly rising (here are up-to-date numbers).

Housing bubble and rising inflation is a familiar picture to Latvians and many other countries in Eastern and Central Europe, as documented by Eastern European Economy Watch or some of my own posts.

Slovenia, however, was supposed to be the success story, immune from the overheating trends seen elsewhere. Their economic fundamentals are still quite good. But this reminds me that Latvian economy was viewed as the Eastern European success story just two years ago. ("Safe investment opportunity with 7-8%/year growth".) Too large amounts of foreign money pouring into a country in too short time can create economic bubbles quickly.

Friday, November 23, 2007

Different politics?

With Latvian politics in flux, it's virtually certain that new political parties will appear between now and the next parliamentary election.

This month, we saw the first one. It's lead by Aigars Štokenbergs and called "Society for different politics". I'm on the optimistic side about it, except that...

The promises of "new type of politics" are a bit worn out here, in Latvia. Over the last 10 years, we have seen New Party, New Era Party, New Democrats, New Centre Party (which even started with "Different politics" as its official name) ... "Different politics" now sounds like those laundry detergent ads in which they compare themselves to "regular detergent" and claim to produce much cleaner laundry. Repeated so many times by so many advertizers...

On to the substance... Aigars Štokenbergs is a Latvian millionaire businessmen who used to belong to People's Party and served as the minister of economy and regional development for one and a half years. He was on their shortlist for Latvian president this spring but the party nominated Maris Riekstins instead. Then, the relationship between Štokenbergs and the party deteriorated rapidly and he was formally expelled in October. He cited his opposition to business interests of Andris Šķēle as the reason. If that's indeed the case, I wonder how Štokenbergs managed to stay in People's Party for 8 years. Šķēle has been influential there forever.

His team includes another People's Party rebel (and another almost-presidential-candidate-from-People's Party), Artis Pabriks and several former top managers. Like Ivars Lacis (until recently, the rector of University of Latvia). They certainly have a substantial amount of managerial talent there (and, because of that, my doubts about New Era Party don't apply to them).

In terms of political ideas, they are hard to figure out. On his blog, Štokenbergs can start a sentence with asserting his right-of-center ideas and then talk about Scandinavian style welfare state as Latvia's future. How that fits together, I don't know. He either means some type of social market economy or is just trying to appeal to every possible constituency simultaneously (time-honored tradition of Latvian politics).

And he speaks of new tax on "speculative wealth". Hmm, how can a tax service distinguish between speculative and non-speculative wealth?

For now, I'm more positive about them than negative. But I can't resist making jokes about "different politics".

Thursday, November 22, 2007

On "seven fat years"

"Seven fat years" have gone empty, says this article. Inflation is completely out of control, exceeding 12%/year by the end of the year. And, from perspective of many people, it feels like 25%/year.

Sounds like Latvian opposition speaking about Latvia? Actually, it's Mikhail Kasyanov speaking about Russia. Economic trends have been similar across many countries in Eastern Europe (no matter whether they are in EU or not, or whether they are democracies or not exactly). Baltics, Bulgaria, Romania, Russia, possibly a few more...

Tuesday, November 20, 2007

On hopes and fears

Over the last months, Latvia has witnessed a rising tide of opposition to the present government. The protest against the government's attempt to fire Loskutovs and Tautas Sapulce were two manifestations of that. 7000 signatures in favour of a referendum on early elections is another. Eventually, this tide may sweep away the current coalition.

When I think of that, I'm sometimes hopeful and sometimes skeptical. In my previous post, I expressed the hopeful side. This post is about the skeptical one.

So... assume that Latvia has a new government. Not just the present coalition with a few different ministers (which we'll get in a few weeks). A government whose core consists of parties and people not represented in the current one (New Era Party and whatever else may form out of the present political storm). There are two ways how it could go wrong.

First, the new government may have the same problems as the old one. As Loskutovs-lead KNAB recently revealed, 11 members of Latvian parliament are either employing their relatives as aides or using their housing allowances to rent from relatives... quite possibly, at more than the market rate! Well, before Loskutovs was crowned as the anti-corruption hero by public, he had his own scandal with giving pay raises to his girlfriend who was also his subordinate at KNAB. Scandals of this type are not restricted to the present coalition and its supporters.

Second, they may be just a bit too eager to fight the corruption, at the cost of neglecting other issues. This charge has been repeatedly thrown at New Era Party and its appointees. Aivars Lembergs, the troubled mayor of Ventspils, has his famous battle with Ojars Grinbergs, New Era's appointee to the board of Ventspils Nafta oil transit company. Lembergs characterized Grinbergs as totally uninterested in doing anything to run the company. He was there just to fight Lembergs, not to do anything boring that might actually make the company function better. Now, do I really want my country to run by people like that?

One or the other of those two concerns have kept me from supporting New Era Party most of the time. I still have to form my opinion about the Štokenbergs-lead "Cita Politika" (Different politics) organization.

Wednesday, November 14, 2007

Away for next few days

Blogging to resume on November 18 or 19.

Saturday, November 10, 2007

Change is in the air

Some more thoughts on Tautas Sapulce, with one week delay.

When I look at the list of people who signed in support of Tautas Sapulce, last week's anti-government gathering, it feels a bit like in year 1988.

In the summer of 1988, the Latvian independence movement started. It was mainly started by intellectuals: writers, artists, journalists. Then more people joined. The new independence activists came from all walks of life. In 1991, Latvia won independence. By 1993, some of Latvian Americans, Latvian Australians, Latvian Germans came back to their home country and joined the politics. At one point, our government had 5 ministers who had recently returned to their home country after being refugees for 45 years.

Gradually, both independence activists and returnees from abroad left politics. Some of them went into business, some into foreign service, representing the country abroad. Some became judges. They were replaced by a new type of politicians, exemplified by Andris Skele. While other people were active in the independence movement, he accumulated a substantial wealth privatizing the companies in the food industry and then became the prime minister in 1995. Some of the newcomers were wealthy, like Skele. Others were career bureaucrats, who had risen through ranks. Unlike the intellectuals of late 1980s, they did not inspire passion. Rather, they would manage the country pragmatically. To everyone's benefit, so they said. To their own benefit, according to their critics.

Over the last years, some of our activists from late 1980s and early 1990s have been returning to a more active role. And, typically, they are taking a stand against the generations of politicians which replaced them. Sandra Kalniete, Girts Kristovskis, Marina Kostenecka, Aivars Endzins... they all signed the petition calling people to protest against the current government. There's also a lot of Latvian American (Canadian, Australian, etc.) returnees among the signatures.

I don't know where this is going to lead. But it certainly does not look like a " business as usual" of the type we have seen over the last 8 years. The change is in the air.

Thursday, November 08, 2007

Latvian inflation at 13.2%

Central Statistic Bureau reports that inflation reached 13.2%/year in October 2007. In comparison, it was 10.1%/year in August and 8.2%/year in May. It looks like we're in a nasty inflationary spiral.

This is beating the worst expectations. A few months ago, then-still-a-minister Aigars Štokenbergs predicted that the inflation will reach 14-15%/year by the end of 2007. I didn't believe him back then but now... the reality may be even worse by December.

The trend is similar across many Eastern European countries. Estonia has inflation of 8.5%/year now, up from 5.7%/year in August. The Latvian numbers are, however, one of the worst... and I've no idea when this spiral will end.

UPDATE (a few hours later): Parex Asset Management is trying to calm the people by pointing out that the usual beginning-of-heating-season increase in heating costs came one month early this year. As a result, October's yearly inflation numbers include two once-a-year heating price increases, one from November 2006 and another from October 2007. Good point, but even adjusting for that only decreases 13.2%/year to 12.7%/year.

And, if today's dinner bill is an indication, the inflation has not made my friends to spend less. Quite the contrary.

Wednesday, November 07, 2007

Latvia, Estonia, real estate

Estonian blogger Davix has some interesting graphs on apartment prices in Tallinn, Estonia. The overall trend is the same as in Latvia: the prices peaked in Spring and are now slightly more than 10% off the peak prices.

The trend did not surprise me, but the numbers did. From the graph, the October price looks around 1490 Euros/m2 which is the same as Latio's estimate for Riga, except that... Latio's numbers is average of old (Soviet era) apartments while Davix averages Soviet era apartments and (more expensive) new construction.

So, if one did apples-to-apples comparison (which I can't do because I don't have Estonian statistics separated by time of construction), Tallinn apartments will probably be about 20% cheaper than Riga. At the same time, Latvian salaries are 25% below the Estonian ones.

And Estonians are still complaining about the housing bubble. If they have a bubble, Latvia has a mega-bubble!

Monday, November 05, 2007

Is Latvia like US now?

David Brooks, one of my favorite New York Times columnists, had a recent column in which he wrote:
American voters are generally happy with their own lives. [...] Researchers from Pew found that 65 percent of Americans are satisfied over all with their own lives — one of the highest rates of personal satisfaction in the world today.

On the other hand, Americans are overwhelmingly pessimistic about their public institutions. That same Pew survey found that only 25 percent of Americans are satisfied with the state of their nation.
The political issues in Latvia are very different from US but it feels exactly the same way. Most of people whom I meet are happy with their lives. Typically, they are better off than they were 5 or 10 years ago.

At the same time, our political elite looks increasingly dysfunctional. It's hard to find anyone who trusts Kalvitis' government. Opposition does not look much better - if New Era Party was capable of convincing people that they can govern better, they would have won the last election. Right now, if "none of the above" was an option on Latvian ballots, it would win the election - by a large margin.

Saturday, November 03, 2007

Tautas sapulce

Today is the big public gathering (Tautas Sapulce) in Doms' square to protest against political corruption in Latvia and the present government. Aleks will probably have a first hand report from there when it's over. A few of my colleagues also planned to go there.

I watched it for a while on TV. It was quite impressive. Doms' square looked full and TV reported 8,000-9,000 participiants. It was snowing (Latvia is having first snow this morning) and cold but people were there, mostly under umbrellas, to express their unhappiness with the Latvian government.

It was quite unlike anti-government protests in other countries. Several choirs have come to the protest and short speeches by public figures alternated with collective singing of Latvian songs. It looked very peaceful and, unlike with protests in many other countries, it was absolutely clear that this protest will never turn into a riot. Yet, people were quite resolved and firm that our government must change.

When listening to speeches by opposition politicians, we wondered: will they actually be better? My family has never been Kalvitis' fans. Yet, today they ended up chuckling at the opposition speakers. There is a gap between speaking eloquently about how moneyed interests are having too much influence on Latvian politicians... and actually being able to govern better. Our opposition has a lot of the first skill. But they have not convinced us about the second. And when I see Latvian opinion polls that show New Era (the main opposition party) at 11.2% of public support, despite the unpopularity of Kalvitis' government, I conclude that a lot of Latvians feel the same way.

Thursday, November 01, 2007

October real estate numbers

The Latvian real estate bubble kept deflating in October, with apartment prices down another 2%, to 1490 Euros/m2, according to Latio real estate agency. The prices are now 13.5% below the peak of 1720 Euros/m2 reached in April. However, they are still 6% higher than one year ago (October 2006).

The new construction is slowing down and only one new project in Riga has been announced in September. Other real estate agencies report similar trends.