Wednesday, October 31, 2007
Vaira Vīķe-Freiberga is now the new president of European Research Area Board, a group of experts that will advise EU on scientific research and make policy suggestions to European Commission. It's an advisory role but an important one.
While looking for information on her new appointment, I came across similarly-named
European Research Council which distributes EU funding for research. Their website has the preliminary results of their first grant competition. Latvia did not do well at all and, even in terms of submitted grant proposals, we were the last.
Latvian governments did underfund research quite badly for 12-15 years (from Godmanis government in early 1990s until a few years ago) and we are still seeing the consequences of that. Things have been changing for better in the last few years (I hope the next government continues that) but it will take a while to undo the damage from 12-15 years of underfunding.
Monday, October 29, 2007
Also, if the trend continues, expect a strong slowdown in the rest of Latvian economy. Decreasing the available credit this quickly, by so much, has to have a strong impact. A substantial fall in home prices (beyond the 14% decline that has already occured) and an impact on a lot of other things, as well.
Thursday, October 25, 2007
What surprised me was this evaluation of Kalvitis' government policies on inflation and economic overheating, by David Orchard of Moody's rating agency:
They have done enough. For many years it was all talk and no action. Finally they are doing something.It coincides with what I think. After a massive criticism from both Latvian press and international financial organizations, Kalvitis' government is starting to get its economic policies right. In a month or two, Kalvitis will likely be gone and Latvia will have a new government. I hope the new government keeps doing the right things, as far as economy is concerned.
Monday, October 22, 2007
According to Irish Independent, the same thing has happened in most of Eastern Europe. Latvia, Estonia, Lithuania, Poland, Hungary, Bulgaria... all those countries have their housing prices falling. And some Irish investors are having problems because of that...
Thursday, October 18, 2007
In his first post, Hansen describes Latvia as the "most interesting economy in the EU these days". I interpret "interesting" as "could end up well, could end up not so well". Economies with problems are not interesting and obvious disasters are not interesting, either.
The whole L-Diena set of business and economy blogs is getting better and better. I recommend it for any economy-interested readers who read in Latvian. (Morten Hansen is the only English language blogger there so far...) And, if L-Diena could add RSS feeds, it would be even better...
Tuesday, October 16, 2007
The usual suspects in Latvian media and politics have already started spinning it, by cherry-picking quotes to fit their view of the world, or making up arguments why the speech is not relevant. Read the speech instead of reading their reports. Or read both and contrast them. (At least one quote that is going around in Latvian language media is a very loose translation of the original.)
Sunday, October 14, 2007
Deutsche Bank has downgraded Swedbank to 'hold' from 'buy' with a maintained target of 239 skr, citing the increased risk of a hard landing in the Baltic economies and especially in Latvia.
In a note to clients, Deutsche Bank said Swedbank's management have reacted too late and have few tools to manage the economic slowdown in Latvia, especially as it believes inflation there will be above 10 pct into 2008.
Swedbank owns Hansabank, the largest banking group in the Baltics, and is at risk from a possible devaluation of Latvia's currency, the lat.
Hansabanka is Latvia's largest bank and has issued 3.65 bln lats (5.2 bln euros) in credits (27.7% of all bank credits in Latvia). With lat/euro exchange rate fixed and money flowing freely between Latvia and abroad, the Bank of Latvia has essentially lost control over the fiscal policy in Latvia. Hansabanka and other major Scandinavian-owned banks (SEB, Nordea, DnB Nord) are the ones who determine it.Until the beginning of this year, Hansabanka was lending loosely, with more than half of its loans being financed by money from abroad (e.g., its owner, Swedbank). This contributed to the housing bubble and Latvia's huge current account deficits. Then, the financial analysts started getting worried and now Hansabanka is under pressure to cut back.
Hansabanka has already cut the amount they issue in Latvian home loans 5-10 times. This downgrade means they are unlikely to increase it back soon (even if the Latvian government relaxes its restrictions on lending). So, housing prices are not going to rebound in the next few months. And cutbacks of this scale imply that we might see a very substantial slowdown in Latvian economy in general.
I went to US embassy in Riga a few days ago, to apply for a visa for a short work trip to US. I had a better experience. Everyone was polite. I had my visa the next day. Unlike in 2002, I did not see anyone else being treated unfairly.
Maybe, the times are changing. In the last year, only 1.33% of Latvian visitors to US illegally overstayed their visa. The remaining 98.67% should not be treated with suspicion when they come to US embassy to apply for visa. And US embassy in Latvia may have understood that.
Thursday, October 11, 2007
- Traffic is much worse. 5 years ago, I could get home without traffic jams easily. Not any more.
- Same about (intercity) buses and trains. In July, Aleks had a post on how he spent 3 hours standing on overfull bus from Riga to Ventspils. I thought "he had an extraordinarily bad experience". No, I now have to think carefully which bus to take... so that I don't end up with a similar experience myself.
- Everyone is complaining about inflation being at 11%... but it seems that people are spending more rather than less. They are driving more, travelling more and so on...
- It looks like Riga has substantially more small children than a few years ago. In a future post with numbers, I'll discuss what is happening to Latvian birthrates...
The chairman of Bank of Latvia, Ilmars Rimsevics, just said the following:
- Bank of Latvia is watching the slowdown in new credits;
- If the slowdown is too fast, it may damage the Latvian economy;
- In that case, Bank of Latvia may consider relaxing the restrictions on new lending.
Saturday, October 06, 2007
In August, Latvian banks added 78.182 million lats to their home loan portfolio. In contrast, they issued about 170 million lats of new loans per month in the beginning of this year.
As I argued in one of my previous posts, the Latvian housing boom has been largely fueled by readily available credit. In the past few years, the Latvian banks were increasing their home loan portfolios agressively, by 80% a year. Easier credits enabled people to pay larger amounts for apartments and houses, increasing housing prices by 60% a year.
Now, this process may have come to end. Judging the by graph above, a very abrupt end, with banks issuing only half as many loans as they used to a few months ago. (And, according to Latio, the former market leaders, SEB and Hansabanka are issuing 5-10 times less home loans than they used to.) There's less credit available and, if the trend persists, people will be unable to buy apartments and houses at the current prices. Sellers will be unable to sell and may have to postpone the sale or sell for less.
The decline in available credit has been much more abrupt than I thought. (And, given the subcrime credit scare in US and its impact of the world financial market, it may get even worse.) The impact of that on the Latvian housing prices and broader Latvian economy remains to be seen. Developing...
Friday, October 05, 2007
As most Latvians know by now, the story started in October 2006 when Emsis got his briefcase stolen in the parliament building. According to Emsis, he had 10,000 US dollars in cash in that briefcase. The investigators found out that the briefcase was stolen by a waiter from the parliament cafe. But, instead of 10,000 dollars, they recovered only 6,000.
Emsis changes his testimony and says that he only had 6,000 dollars in the briefcase. (He now claims that he did that so the case would get to the court more quickly - and he could at least get 6,000 of his dollars back more quickly.) Prosecutor's office is not happy about him giving contradictory testimony. They conclude Emsis has lied under oath at least once and start a criminal investigation against him - for perjury. Emsis resigns.
It all sounds strange to me. A major politician changing testimony just to get 6,000 dollars back a few months early? Prosecutor's office prosecuting someone for what looks like a minor change in what they said? (Or is there something else that Emsis is not saying?) This scandal (and other things that are happening in Latvia right now) is leaving me more and more puzzled...