Wednesday, December 05, 2007

Retrospective on Kalvītis government

Today, Latvian prime minister Aigars Kalvītis turned in his resignation, as he promised a few weeks ago.

In a country known for coalition governments that rapidly fall apart, Kalvītis has been Prime Minister for last 3 years, since December 2, 2004. Latvia has had only one democratically elected Prime Minister, Ivars Godmanis, who served longer (from May 1990 to August 1993).

Both Kalvītis and Godmanis left the office deeply unpopular. In Godmanis case, it was the difficult economic transition from Soviet economy to market economy. The industrial production was falling by 30%/year and a lot of people were losing their jobs.

Kalvītis case is completely different. A few months ago, I came back from being abroad for many years and found a country that has changed for better. The Latvian economy has been growing at 11%/year. The inflation is rising, but people are spending more. The retail sales have been growing at around 20%/year (after adjusting for inflation), for most of Kalvītis' term. The number of Latvians leaving their country for better paid jobs in Ireland or UK is a half of what it used to be 2 years ago. I have my doubts about sustainability of those trends, but the problems with that have not started setting in yet...

Bill Clinton once famously said: "It's the economy, stupid". Kalvītis' government assumed that was the case. They were wrong.

With the economy improving, people start having other concerns. They start demanding more of their government. They have less tolerance for corruption. They become less willing to tolerate millions in government money disappearing through shaddy deals. Many of the people in Tautas Sapulce demonstration were not poor people who have been left behind by the economic boom. Rather, they were people who were comfortable in their everyday lives but wanted the government to do better. To be less corrupt and more helping to those in need. They did not want to have to say "My life is fine but the government sucks" much longer.

We will soon know who the next prime minister is. The government will probably be a re-shuffle of the current one. Kalvītis will take the blame for the past mistakes and the current coalition will attempt to make people believe that they have changed.