Latvian pensions referendum, part 1

Latvia will soon have a referendum on increasing the state-provided old age pensions. This is the first of the two posts on what exactly is happening. In this post, I will summarize the politics around the referendum. The financial side will be discussed in the second post, which will follow in a few days.

The organizers. The referendum initiative originates from a group lead by Janis Kleinbergs, a Latvian who spent most of his life in Venezuela and returned to Latvia a few years ago. He filed for Latvian retirement benefits and discovered that, since he has not been employed in Latvia at all, he was only eligible for the minimum benefit which was about 60 euros/month at that time.

Kleinbergs felt insulted by such a meager pension. He might have had savings from Venezuela or other income (as one can see from his property declaration which shows a substantial amount of property). But his country paying him 60 euros/month... that was insulting. And some other people may have to live on similarly meager pensions and (unlike him) have no sizable savings from Venezuela.

Kleinbergs became the leader of the Party of Retirees and Senior Citizens and run for parliament in 2006. The party gathered 0.79% of popular vote. Then, in summer 2007, he, together with other members of his party started gathering signatures for a referendum that would drastically increase the minimum pensions.

The signature campaign. The Party of Retirees and Senior Citizens had almost no money for advertising nor access to major media. As a result, most of Latvians (including myself) did not know that there was a signature campaign underway. Nevertheless, they gathered 8000 signatures between July 2007 to February 2008.

Then, in February 2008, the Latvian parliament decided to increase the fee for notarizing the referendum signatures from 2 lats (3 euros) to 10 lats (14 euros). They only needed 2000 more signatures but the hurdle just got higher...

Stokenbergs jumps in. At that point, the pro-referendum campaign gained another supporter, "Society for Different Politics", lead by the People's Party's defector Aigars Stokenbergs. With Stokenbergs' fortune (he's a real estate millionaire) and now much larger media coverage, the missing 2000 signatures were gathered in 3 days.

Why so late? "Society for Different Politics" was founded in November 2007 and only jumped into the campaign in February 2008. Under the more benovelent interpretation, Stokenbergs and his people were busy with other matters. Under the more cynical interpretation, they were initially opposed but then decided to score some publicity points by attaching themselves to a cause that was popular with people and was probably going to a referendum anyway but not supported by any of the major parties.

The rest of the story. Since 10,000 signatures were successfully gathered, Latvian government had to take over the organization of the signature process. (Here is an explanation of the Latvian signature process.) 170,342 more signatures were gathered in government-organized signature places. This substantially exceeds the required minimum of 149 thousands (10% of eligible voters), so, a referendum will be held.

Who supports it? Kleinbergs-lead Party of Retirees and Senior Citizens and Stokenbergs-lead Society for Different Politics have been very vocal. Stokenbergs has spent 100 thousand lats (140 thousand euros) of his personal money for advertizing and this law is now the defining issue of his future party. Most of other opposition parties (New Era Party and Harmony Centre) also support it but less vocally.

Who is opposed? All the parties in the governing coalition claim that the proposed law will break the budget and destroy the existing pension system. From the opposition parties, Sandra Kalniete-lead Civic Union party also opposes the proposed law, saying that referendums are not the right way to decide retirement benefits.

Does anyone believe the government? Since I don't have any polling data, I have to use unscientific information from our last family gathering. People supporting government's position (that the proposed law is a catastrophe) were in minority but it was a substantial minority.

When will we have the referendum? There are several formalities that should be completed, like Central Election Committee verifying the validity of the signatures. Given the typical amounts of time for that, the referendum might be in September, unless the constitutionality issue comes up.

Constitutionality issue. Referendums on money issues are dangerous, since people are likely to vote for unfeasible combinations of lower taxes and higher benefits. In order to prevent that, the Latvian Constitutional Assembly of 1922 put in the following article into the Constitution:

73. The Budget and laws concerning loans, taxes, customs duties, railroad tariffs, military conscription, declaration and commencement of war, peace treaties, declaration of a state of emergency and its termination, mobilisation and demobilisation, as well as agreements with other nations may not be submitted to national referendum.

They don't mention retirement benefits, since those did not exist back in 1922, when the Constitution was written. But the current referendum affects budget in a substantial way and could be recognized unconstitutional because of that.

Who decides the constitutionality? Probably, the Constitutional Court. But nobody knows for sure, since we have never had any referendum proposal that could be questioned, based on Article 73.

Part 2 to follow in a few days...

Latvians disappointed with all political parties, including the opposition

The May opinion poll on how people would vote now, from Latvijas Fakti:

Harmony Centre 10.4%
Farmers and Greens 6%
People's Party 5.5%
Latvia First Party/Latvia's Way (LPP/LC) 5.1%
Civic Union (Kalniete and Kristovskis) 4.3%
For Human Rights in United Latvia 3.6%
New Era Party 3.6%
Štokenbergs-Pabriks party 3.5%
Fatherland and Freedom/LNNK 2.9%
---------------
total for all parties 52%
undecided or would not vote 48%

The coalition remains unpopular, as it has been for at least a year. Two months ago, it looked like the newly founded Kalniete-Kristovskis and Štokenbergs-Pabriks parties might gain support. But, now, they are losing voters as well. Apparently, not too many people share my enthusiasm for the Civic Union. And supporting the popular referendum for increase in retirement benefits has not helped Štokenbergs' and Pabriks' popularity much.

At some point, some political movement will be able to earn the trust of Latvian voters. But I really don't know how, what type of political movement or how many years in the future that will be...

How Eastern European immigration is changing the Eurovision Song Contest

Results of Ireland televote:

• 1st place (12 points) - Latvia;
• 2nd place (10 points) - Poland.

Overall, Latvia did OK this year, getting points from 15 different countries, most of which had no obvious connection to us. But Ireland was the only 1st place vote that we got and I'm sure Latvian-Irish had a substantial role in that.

"Soviet Story" and "Young Russia"

It appears that a simple mention of crimes committed by Stalin's regime is enough to set some pro-Kremlin people in Moscow on fire. Or, more precisely, it's enough to make them set things on fire.

Edvīns Šņore, a young Latvian director, recently completed a documentary The Soviet Story, which details crimes of the Soviet regime. The funding for the documentary was provided by the European Parliament and it premiered there on April 9. The documentary is showing in Latvia now and might show in a few other Eastern European nations.

Young Russia (Rossija Molodaya) is a political youth organization in Russia. They are lead by Maxim Mischenko, a member of Russian parliament from Putin's United Russia party and the movement appears to be something like the infamous Nashi. When they learned about the documentary, they staged a protest near Latvian embassy in Moscow, complete with a hanging and burning of a doll of the director Edvīns Šņore:
Besides showing their unhappiness, "Rossija Molodaya" also demanded that Latvia bans the showing of The Soviet Story. I guess they are unaware of the freedom of speech...

UPDATE: I highly recommend reading Edward Lucas' column on the same topic from the Economist. Also, if anyone is looking for the "Soviet Story" homepage, click here.

Headlines that I don't believe

Today's Diena (in Latvian): Better relations with Russia might prevent Latvia from its GDP growth falling as low as in Estonia.

Response: Quarterly GDP has decreased by the same 1.9% in both countries. The year-on-year numbers are only different because the decrease started earlier in Estonia.

Latvian retirement benefits referendum goes ahead

The signature gathering is over for the referendum proposition on a major increase in the retirement benefits (supported by Štokenbergs' "Society for Different Politics"). Reportedly, there are 170,342 signatures, 21 thousand more than the required minimum of 149 064 signatures.

So, we might have two referendums this summer: on the constitutional amendment allowing to dissolve the parliament and this law. More on that later.

(Almost) Baltics-wide recession alert

Economic "growth" in the 1st quarter of 2008, compared to Q4 2007, seasonally adjusted:

• Estonia: -1.9%
• Latvia: -1.9%*
• Lithuania: -0.2%

The reasons behind this are the same in all 3 countries. They all boomed in the last 7 years, helped by cheap credit from Scandinavian banks. Now, the developing credit bubble pushed the banks to cut bank on credit, triggering a recession. Events in Lithuania are a few months behind Latvia and Estonia but seem to be in the same direction.

Several other Eastern European countries (Romania, Bulgaria, possibly also Slovakia and others) show economic trends similar to pre-recession Baltics and might get affected, but there is no sign of recession there yet.

*Since Latvia's statistics office only releases seasonally unadjusted numbers, Latvia's number comes from my own back-of-the-envelope seasonal adjustment. The numbers for Estonia and Lithuania are official.

UPDATE (9/6): all three Baltic nations have updated their initial estimates of 1st quarter GDP. Here is a new post with the updated numbers.

Ice Hockey World Championships, a summary

Latvia - USA 0:4
Latvia - Canada 0:7
Latvia - Slovenia 3:0
Latvia - Finland 1:2
Latvia - Norway 4:1
Latvia - Germany 3:5

After the first two games, it looked like we'll have to fight hard to avoid relegation. Then, it looked like we could make the quarterfinals. At the end, neither of those two possibilities happened. Well, that's how it has been for most of the last 12 years. 11th place, in which we finished, is quite close to the long-term average of our team.

Our hockey federation's goal was to make the top 10 and, before the tournament, they said that head coach's Oļegs Znaroks' job may be in jeopardy if the goal was not reached. Since the team only narrowly missed getting into top 10, I think Znaroks should be allowed to continue.

Vladimir Krikunov, Znaroks' consultant from Russia, suggested that Latvia improves the team by giving Latvian citizenship to some Russian players:

Even Belarus with its well-developed local championships lacks local player resources. In the last years, they have added six naturalized Russians to their national team. [..] Nothing bad will happen if one or two players from Russia appear on the Latvian team.

I'm skeptical on this idea. Importing one or two players from Russia would not hurt, but it might not help that much either. Russian hockey stars have no reason to play for Latvian national team instead of Russia. And IIHF rules against team-switching would prohibit any Russian player who has ever played an official game for the Russian team (even if that was 10 years ago or even on Russian team in Under-18 World Championships) from playing for a different country, even if they obtained that country's citizenship*.

So, we'd be left with importing second-tier Russian players and I really doubt whether those would be able to take our team anywhere higher than the current 11th place. And it's more fun to root for the homegrown players whose games I have followed since they were in junior hockey. I hope they stick with them.

*I was slightly wrong here. IIHF allows country-switching in this case, but only if the player has played in the national championships of his new country for at least 4 consecutive years. From Latvia's perspective, it's equivalent: our national hockey league is pretty weak and it would be very hard to get any highly skilled foreign player to stay there for 4 years.

Latvia-Germany, 3:5

At 2:15am this morning, a substantial fraction of the country was glued to the TV sets for the decisive hockey game between Latvia and Germany. If Latvia managed to tie the game, we would advance to quarterfinals (because of our 4-1 win against Norway one day earlier).

Germany has been a difficult opponent for Latvia recently. I still remember 2002 Winter Olympics (also taking place in North America and also on after-midnight live TV in Latvia) in which Latvia's hopes for quarterfinals were dashed by bigger, more physical German players which succesfully pushed the Latvians out of their way on the ice. I was a bit afraid of something like that happening again.

I was right, but only partially. It looked like Germans were physically stronger and they won most of the battles near the boards. But Latvia scored first and they would find ways to use their skills to beat Germans again later. After 47 minutes, it was 3:2 Latvia. Just 13 more minutes and we could even allow one goal in and still make quarterfinals...

But, then, Germany scored three goals in 5 minutes. 5:3 Germany. The last minutes were full of penalties and included a fight between Latvians and Germans with almost everyone on the ice involved.

Signs that something is rotten in Latvian politics...

Political scientist Ivars Ijabs, talking to New Era Party leadership, in a public meeting:

It would make more sense for New Era Party to join the governing coalition, if they simultaneously entered the coalition in the Riga City Council. It would improve the financial state of New Era Party members and make the participiation in the next elections easier.

When an anti-corruption party starts getting advice like that from sympathetic political scientists...

Latvia-Finland, end of the game

We lost. 1-2. But if that last shot by Berzins had gone in or something else has gone our way... It was close.

After the hopeless 0-7 loss against Canada, I started thinking that this team was not as good as the one we used to have 5-10 years ago. I might have been wrong. On a good day, they can have a close game with a world-class team like Finland.

Now, two more games against Germany and Norway. If Latvia plays like they did today, we can win.

Latvia-Finland, 1st period

Wow! I've never seen anything like this...

Shots on goal: Finland 36 - Latvia 5.
Score: Latvia 1 - Finland 0.

In more detail:

• Lauris Darzins skates around Finnish goal and puts the puck in the net 1:27 in the game;
• A few minutes later, Latvia makes a mistake clearing the puck while shorthanded and earns delay of the game penalty (meaning we are now 3 against 5 Finns);
• Finns take 10-15 shots on Latvian goal during two minutes that they are 5-on-3. Edgars Masalskis saves us all the time;
• Overall, we've picked up 8 two-minute penalties for every possible minor infraction (including delay of game and too many men on ice);
• I'm quite impressed with our penalty-killing. It's agressive and, when it does not help, Masalskis comes to rescue;
• Overall, Finland is the more skilled team but it's much more equal than I expected.

2nd period to start soon...

Latvian economy gets even worse

Latvian Statistics Office reports that Latvian economy grew 3.6%/year in the 1st quarter of 2008. This is far worse that anyone predicted.

To put this into perspective, Latvian GDP in Q4 2007 was 8.1% bigger than in Q1 2007. So, we have 4.5% decrease from Q4 2007 to Q1 2008. Some of that is, of course, seasonal. The Christmas shopping season contributes to the economy in 4th quarter substantially, every year.

Unfortunately, our statistics office does not release seasonally adjusted numbers. So, I had to do a rough adjustment myself. In last 5 years on average, we have had 0.3% decrease in GDP from Q4 of one year to Q1 of the next. This should be compared with the average 9.5% year-on-year growth which translates to roughly 2.3% quarter-on-quarter on average throughout the year. So, the typical Q4-to-Q1 growth is 2.3%+0.3%=2.6% less than the average quarter-on-quarter.

Making that adjustment gives 4.5%-2.6%=1.9% quarter-on-quarter economic contraction which is still very bad.

Caveat #1: One should also adjust for different number of working days (Easter was in March this year and is in April most years) and even different number of days in Q1 (we had February 29 this year). And that gets too complicated for me to do it myself...

Caveat #2: this is the "quick estimate" which will be revised in a month. One quarter ago, Edward Hugh argued that "quick estimates" may be off in rapid turning points as this one. He was right: last quarter's "quick estimate" was 9.6%/year and the final one was 8%/year. Let's hope that the current estimate is off in the other direction. (After all, statistics office might have tried to avoid a mistake similar to last quarter and ended up overcorrecting in the other direction.)

But, in any case, we are clearly having a substantial economic contraction.

On Latvian hockey fans

Many articles have been written about Latvian hockey fans and their devotion to their team. About 1000 of them travelled to Halifax, Canada for this year's world championships. Others are trying to catch 2:15am Latvian time (8:15pm Halifax) games on TV.

The Latvian hockey fever started in mid-1990s when Latvia was up-and-coming team. It made the top-division world championships in 1997 and managed to tie both that year's champion (Canada) and silver medal winner (Sweden) in its first tournament. A bit more and we might playing for medals - so it looked in those days.

Last 4 years have been mostly downhill from Latvia. From our independence in 1991 until early 2000s, we had the same group of players at the core of our team. Now, almost all of them have retired and we essentially have a new team. Fewer NHL players (only one this year and he is an enforcer). Less impressive list of foreign teams for which our players play. And we are not even close to being able to tie Canada again. The gap between us and the leading teams has grown bigger.

But the fan devotion is still there, even though the team is not doing so well. A surprisingly large number of my friends are staying awake for 2:15am TV games. Win or lose - we are with our team.

Ice Hockey World Championships

We won 3-0 against Slovenia last night. For those hockey fans who stayed awake for 2:15am TV broadcast from Canada, it was a nervous experience.

For first 30 minutes, Latvia outplayed Slovenia completely. Once, the commentator misspoke "Latvia has one minute left on its powerful" during a Slovenian powerplay. It was an understandable mistake - Latvia was attacking more than Slovenia, even when we had one less man on the ice.

After 30 minutes, shots on goal were 23-5 in Latvia's favor. But the scoreboard was still 0-0. Slovenian goalie saved him team a lot of times. Our team hit the goalpost at least twice. Our team was awarded a penalty shot, which we missed...

Then, Slovenian defender pulled Guntis Galvins down on the ice with his stick. Our team got the second penalty shot of the game and they finally scored. One minute later, another goal. 2-0 Latvia.

The second half of the game looked less lopsided. Slovenia started attacking more and they got some scoring chances. But Latvia was still the better team on the ice. At the end, it was 3-0, with the last goal going into empty net 28 seconds before the end of the game.

Now, Latvia moves on to the 2nd round and Latvian fans are preparing for one more 2:15am broadcast from Canada (as well as two games at more reasonable times).

Latvian economy gets worse

Our statistics office reports that Latvian industrial production declined 5.5% year-on-year in March 2008. The previous numbers show that this trend goes back to 2007 but it is getting worse and worse. The decrease in industrial output was also observed in Estonia.

I'm usually a "cautious optimist" but, with these numbers, even I can't find any causes for optimism. Well, except for Latvian export statistics that show exports increasing by double-digit %. Both myself and some economy experts from Latvian banks are puzzled about how that fits together with decline in industrial production. Here are some explanation attempts, none of which seems to fit together.

Attempt #1: There is no export growth. It's just inflation in export prices!

Response: Inflation for Latvian export prices is around 5%/year, far less than the domestic market inflation. (With foreign customers, it's much more difficult to increase the prices by 20%...) And export growth has been around 20%/year in nominal prices, which would translate to 15%/year in inflation-adjusted prices.

Attempt #2: The domestic consumption is falling and the goods that would be consumed domestically are exported.

Response: The domestic consumption is falling slower than the industrial production. Retail sales were down by 3.6%/year in March and have only been declining year-on-year for 3 months. In contrast, industrial production has fallen by more % and longer.

Attempt #3: With the real-estate bubble collapsing, the domestic market construction-oriented industries are imploding while exporters are doing fine.

Response: I almost wrote a blog post on why this is so. But the breakdown of latest numbers by industry shows decreases for a number of industries which have no obvious link to the struggling Latvian construction industry. And news reports say that several exporters are in trouble.

Attempt #4: There's no export growth! It's a giant scam to extort VAT refunds from the Latvian tax service.

Response: Latvia has its share of "criminal entrepreneurs". So, VAT refund fraud is possible. But I don't see any indication that it has increased this year (or any reason why it should have increased).

Attempt #5: Latvian statistics are totally messed up.

Response: Well, since we can't come up with a better explanation...

Disgusted

Disclaimer: if you easily get disgusted by stories about what happens to your food before you buy it, you might want to skip over to the next post.

Maxima is the biggest supermarket chain in Latvia. They have a low-cost, low-quality image in Latvia and, for the last months, they've been trying to shed the "low-quality" part. Until recently, they were somewhat successful. Then, they plastered Riga with posters saying "Salad-washing is a myth!".

I used to think that "salad-washing" meant washing lettuce before making a salad out of it. I was badly wrong. It means taking unsold prepared salad which is beyond its expiry date (for example, rasols, which consists of potatoes, meat, pickles, beans and mayonaise) and putting it under running water to wash away the old dressing (mayo, in this case). After that, they put a new dressing on the salvaged meat and vegetables and sell it as new salad.

Maxima was trying to assure people that this is an urban legend, via posters and TV commercials. Unfortunately, former employees started coming forward with their stories of how they had to recycle expired food into food labelled as new. The stories have been all over Latvian news for last few days.

So, Maxima has shot itself in a foot. Before this, there were a few thousands of people gossiping about Maxima practices. Now, it's most of the country discussing whether expired salads indeed get washed. And if that's true, Maxima deserves every bit of the bad publicity they've gotten.

On the positive side, I've been buying prepared salads in stores other than Maxima (I didn't have a good image of them - even prior to this). And I've not had any health or even taste problems. So, maybe these practices are isolated to one store chain after all...

UPDATE (5/28): Maxima is so committed to disproving the rumours that they are setting up webcams in their production facilities, so that anyone can check on them over the Internet. Are they innocent, after all?

A Latvian political party that I can believe?

One week ago, the first of the new Latvian political parties was officially established. Sandra Kalniete and Ģirts Valdis Kristovskis are now the leaders of the Civic Union (Pilsoniskā savienība) party. There are several reasons why I feel hopeful about their organization:

1. In her interview after the first party congress, Kalniete said that Civic Union will be the party that tells the hard truths to the voters, instead of always saying what the voters want to hear. And, judging by how she was talking about the issues, that might actually be true, to a substantial degree.
2. The party congress featured several supporters whom I highly respect. Like Juris Vidiņš, the 1980s leader of Helsinki-86. Human Rights Group Helsinki-86 was the first organization in Latvia to oppose the Soviet regime openly, back in 1986, when such opposition could still result in imprisonment. Being part of Helsinki-86 required a lot of courage.
3. I have some (distant) friends who might be joing the new party. They have not been active in politics before but are highly competent civil servants. If the new party ends up attracting people of this type, they will do well on the competence side.

The skeptical side of me says that a fair amount of Latvian politics gets scripted. After all, I saw the rumours about Kalniete and Kristovskis starting a new party in Latvian press at least three months before the two quit their previous parties. On the other hand, I don't believe in people who stood up to the Soviet regime like Juris Vidiņš being part of a script. And, overall, I'm more optimistic about the new organization than skeptical...