| Population size | 2.070 million |
| Surface area | 64,589 km² |
| Capital | Riga (Rīga) |
| GDP | EUR22,083 million |
| Currency | Lats |
| Corruption level(Transparency International Corruption Perception Index 2012: 100-90 = very clean, 0-9 = highly corrupt) | 49 (ranking: 54) |
| Current government | Unity (Vienotība), Reform Party (Reformu Partija), National Alliance (Visu Latvijai) |
| Three biggest cities | Rīga, Daugavpils, Liepāja |
| Baltic Sea coastal regions | Kurzeme, Zemgale, Riga district, Vidzeme |
By Žaneta Ozoliņa, Toms Rostoks
September 2011 snap elections became necessary after President Valdis Zatlers, in anticipation of not being re-elected for a second term, decided to dissolve the Parliament. Latvian politics saw continuity as Valdis Dombrovskis retained his post of Prime Minister, although the composition of the governing coalition was substantially reshuffled. Since then, his government has overseen a period of sustained economic growth which is also marked by relative political stability. Prime Minister Valdis Dombrovskis has earned endorsements from other European heads of government for his achievements, although there are challenges ahead. 2013 will be marked by preparations for the adoption of the Euro in 2014, for which public support is still somewhat lacking, and municipal elections that are scheduled for 1 June 2013. The BSR continues to feature prominently on Latvia’s foreign policy agenda, but mainly in the context of Latvia’s upcoming EU Presidency in 2015.
Government
The most important two political events since mid-2011 in Latvia were, first, snap elections in September 2011 that were organized after then-President Zatlers decided to dissolve the Parliament and, second, the referendum on Russian as the second official language, which took place in February 2012. After the dissolution of Parliament by the President’s decree in May 2011, extraordinary elections were held on 17 September 2011. One of the arguments advocated by the ex-president Valdis Zatlers was to change the composition and tradition of the political landscape by making it free from oligarchs. Shortly before the elections, Zatlers formed a new political party, ‘Zatlers Reform Party’ (ZRP), later renamed ‘Reform Party’.
After the elections, seats in parliament were divided as follows: the Harmony Center (Saskaņas Centrs/SC) won 32 seats in the 100-member Latvian parliament, the ZRP won 22 seats, Unity (Vienotība) won 20 seats, the National Alliance (Visu Latvijai/VL) won 14 seats, and the Union of Greens and Farmers (Zaļo un Zemnieku Savienība/ZZS) won 13 seats. During the political consultations regarding the coalition there were attempts to include SC in the government. This would have been the first time after restoration of Latvia’s independence that Russian interests would be represented in government. The outcome of the elections had several important aspects. Firstly, parties formed as instruments to represent the business and political interests of two influential politicians – Andris Šķēle and Ainārs Šlesers – did not make it to parliament, and ZZS was not included in the coalition. Second, ZRP proved to be weak and split a day before the vote on Dombrovskis’ government, when six deputies left the fraction and formed a group of independent MPs. Third, 63 MPs from the dissolved Latvian Parliament were re-elected. Fourth, as a result of controversies over formation of the government coalition and exclusion of SC from it, there was a high level of discontent among the Russian speaking population, which culminated in the initiation of a referendum on the amendments to the Latvian Constitution with an aim to grant the Russian language the status of the second official state language in Latvia.
On 18 February 2012, about 1.1 million eligible voters (71.49%) took part in a referendum on Russian as the second official language. This referendum had the highest voter turnout since restoration of independence exceeding even the number of participants in 2003 EU accession referendum. The majority of voters, 74.8%, rejected Russian as Latvia’s second state language and 24.88% supported two state languages. After the referendum, Prime Minister Dombrovskis invited ministries to draw up proposals on how to consolidate the society. However, these attempts did not result in tangible improvements of integration policy.
Policies
After the implementation of strict austerity measures and reforms, Latvia adopted the national Euro changeover plan in September 2012 and appointed a high-level steering committee to manage the process. On 31 January 2012, Parliament passed the law on the adoption of the Euro in a 52-40 vote. The Latvian public remains sceptical with regard to accession to the Eurozone. In November 2012, only 8% (42% in favour but at the later stage) of the public were in favour of a quick introduction of the Euro, while 41% being absolutely opposed to it. However, support for the adoption of the Euro has increased recently. In March 2013, Prime Minister Dombrovskis requested that the European Central Bank (ECB) and European Commission (EC) draft the convergence reports on Latvia’s readiness to enter the Economic and Monetary Union (EMU). In the event of a positive response from the ECB and EC, Latvia will join the Eurozone on 1 January 2014.
An important aspect of Latvian politics is the preparations for the presidency of the Council of the EU in 2015. Latvia decided to start discussion on its presidency priorities early, and the first initiatives were put forward in 2012 when the first public debates on the presidency took place. The Ministry of Foreign Affairs and its social partners organised 13 discussions, with the participation of more than 1400 representatives from the government, public sector, NGOs and experts on prospective priorities of Latvia’s presidency in 2015. One of the results of the public discussions was the consensus that enhancing co-operation in the BSR should be one of the EU presidency’s priorities.
Economic situation and anti-crisis strategies
In 2011 the Latvian economy grew by 5.5%, and the year 2012 was no less successful: it grew by 5.6%, which made Latvia the fastest-growing economy in the EU. Latvia succeeded in proving that austerity measures work, if implemented consistently. The strong economic growth in the past two years was accompanied by a number of other positive trends. Manufacturing grew by 6% in 2012 and exceeded pre-crisis levels. Latvia’s retail trade turnover increased by 9.7%. The State Revenue Service collected more taxes than expected. In late 2012, Latvia managed to repay the IMF loan of more than EUR700 million. Also, Latvia has been working to be admitted as a full member to the OECD. According to the media monitoring report prepared by the Latvian Institute, 74.2% of online media publications on Latvia in 2012 were positive. This is a major improvement, because Latvia was frequently used as an example in 2009 and 2010 of how bad things can get.
The economic outlook for 2013 is mostly positive. The budget for 2013, which the Latvian parliament adopted in November 2012, envisaged an increase for several budget areas, such as demographics, and a remuneration increase for public servants for the first time since the beginning of the economic downturn. The Bank of Latvia forecasts that economic growth will slow down and will average 3.6%, and it is likely that inflation will be as low as 2%. Taxes were increased during the economic downturn, but started decreasing from 2012 onwards. The value added tax was reduced from 22% to 21% starting in 1 July 2012. The government plans to decrease the personal income tax from 25% to 20% by 2015; the first reduction – to 24% – took effect on 1 January 2013. The government plans to increase the rate of social insurance instalments from 2% in 2012 to 6% in 2016.
Although Latvia has been a shining example of the ability to implement harsh austerity measures and return to solid growth, some economic indicators have been lagging behind. The rate of unemployment has climbed down from 19.4% in June 2010 to 13.5% in the beginning of 2013, but progress has not been impressive. As a consequence, in terms of unemployment Latvia is lagging behind its Baltic neighbours Lithuania and Estonia. Social inequality is widely regarded as an important problem, because recent economic growth has not trickled down to some parts of society. Moreover, a number of businesses, including the national carrier Air Baltic and Liepājas Metalurgs, have asked for government financial assistance in the wake of the economic crisis.
Latvia and the Baltic Sea Region
The BSR still features highly among Latvia’s foreign policy priorities, and this is likely to remain the case at least until Latvia’s EU Presidency in the first half of 2015, when Latvia will host a major international forum on the EU Strategy for the Baltic Sea Region. The commitment to include the BSR in the agenda of Latvia’s Presidency was supported and emphasized by Edgars Rinkevics, Minister of Foreign Affairs during parliamentary debates on foreign policy in January 2013. The BDF Summit 2013 in Riga is considered to be a contribution to elaboration of a more detailed and all-encompassing agenda for the EU presidency in 2015, allowing all relevant stakeholders to express their views.
Also, recent years have witnessed further progress in terms of Baltic co-operation. Indeed, there are some examples of Baltic co-operation that are truly commendable. The Baltic States have reached an agreement within the Baltic Assembly on common procurement of vaccines. In 2012, the defence ministers of Lithuania, Latvia and Estonia decided to press ahead with preparations for establishing a joint Baltic military headquarters. Also, Baltic militaries are planning common military procurement. The Baltic States have agreed to co-operate on building a new nuclear power plant in Lithuania, although it remains to be seen whether this project will ever materialize. Latvia’s interest in Baltic co-operation is further strengthened by the fact that Latvia is holding the presidency in both the Baltic Council of Ministers and the Baltic Assembly in 2013.
Although Baltic co-operation has delivered tangible results, the wider BSR also features prominently among Latvia’s foreign policy priorities. The Nordic-Baltic 8 (NB8), which is the 5th largest economy in the EU and 10th largest economy in the world, has become a regional format for discussions. A memorandum of understanding was signed in 2011 on the placement of diplomats in embassies of NB8 countries. This agreement is very important for Latvia because its foreign policy has been caught between a rock and a hard place during the crisis. On the one hand, there has been a drive to use foreign policy as an instrument for advancement of economic contacts and interests, but, on the other hand, the budget cuts left the Latvian Ministry of Foreign Affairs with fewer diplomatic staff and financial means for representation of Latvia’s economic interests abroad.
Another important event related to the BSR is the annual meeting of the Northern Future Forum, consisting of NB8 + UK, which took place in Riga on 28 February 2013. While British interest in forming a ‘Northern Alliance’ has been largely prompted by its willingness to redefine relations with the EU and, thus, look for like-minded allies in Northern Europe, it is hard to deny that there is also some willingness to expand co-operation with the UK on the part of the NB8 countries, including Latvia. The Forum provided a platform for discussing issues relevant to the country as well as to the region and to Europe at large, namely the competitiveness of green economy and the digital divide in society.
Outlook
For the time being, Latvia seems to be on a good path. Not only is Latvia a viable candidate for joining the Eurozone in 2014, its neighbours and most important trade partners in the BSR are also doing well. Latvia has experienced two years of sustained economic growth. Although it is likely to slow down in 2013, Latvia’s economic outlook is mainly optimistic. However, there are challenges ahead, the most important of these being Latvia’s EU presidency in 2015. It should be noted that the economic crisis has dealt Latvia’s civil service a heavy blow. At this point, it is too early to tell whether the BSR will be among Latvia’s key EU presidency priorities, but it is quite likely that the BSR will form an important part of the presidency’s agenda. Thus, it is up to Latvia to consult with other EU member states in the BSR and look for ways to take regional co-operation one step further.