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Story Publication logo September 6, 2009

Latvia a model of economic malaise


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For more than a decade the ex-Soviet republic of Latvia was a poster child of seamless transition to...

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More than 400 protesters blocked two bridges last week to oppose the closing of the only hospital in Bauska, a rural city (population 50,000) about an hour away from the capital Riga.

"Bauska's hospital has been here since the 19th century. It lived through both wars, all regime changes ... I don't understand, why we have to close it," Bauska's City Council chairman, Valdis Veips, was quoted as saying by the Latvian newspaper Diena.

It is just one of many painful stories arising from Latvia's recession — the second deepest recession in the 27-nation European Union, after neighboring Lithuania.

As the global financial storm sweeps across Eastern and Central Europe, Latvia has been especially hard hit: Its GDP dropped by 19 percent in the second quarter of 2009. The International Monetary Fund (IMF) projected in April that Latvia would experience the worst economic downturn in the world this year. Latvia's government secured an emergency loan package of nearly $10 billion from the IMF and EU.

The emergency aid is contingent on deep cutbacks in government spending. While most governments across the world are responding to the financial crisis by increasing government deficits to stimulate local industries, Riga is being forced to make cuts across the board to obtain the bailout.

It passed spending cuts worth about $1 billion in June and has committed to cut the same amount every year until 2012. Government officials waited until the day after the municipal elections in early June to announce 10 percent cuts in pensions and 50 percent cuts in teachers' salaries.

The wait was triggered by fear of a public reaction like that on Jan. 13, when more than 10,000 people took to the streets to protest spending cuts. What began as a peaceful protest that day turned into the worst riots Latvia had seen since the collapse of the Soviet Union in 1991.

Since January, Latvia has seen four more massive protests opposing the deep cuts. Many Latvians feel that the government cuts are arbitrary, without any clear vision or planning, and are directed disproportionately at the masses.

"It just doesn't look to me like the top is making the same sacrifices, while they squeeze the bottom," the director of a local homeless shelter, Dagnija Komarovska, said in May.

The Latvian state controller, Inguna Sudraba, came out with a preliminary report last week stating that the large state bureaucracies that swelled in the boom years, overall, hadn't made the required 20 percent cuts to their salaries.

Many Latvians are also upset that the government officials are not explaining their tactics or communicating which cuts have been requested by the IMF and EU and which decisions are being made by the local officials.

Continue reading full article at GlobalPost.

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