Regions and Countries Photo Essay Slide Show: Latvia’s Tiger Economy Loses Its Bite By The NationTwitter October 29, 2009 Facebook Twitter Email Print As Latvia experiences one of the deepest recessions in Europe, writer Kristina Rizga and photographer Akim Aginsky report on the people caught in the financial storm. For more than a decade the ex-Soviet republic of Latvia was a model of seamless transition to a prosperous postcommunist world. It entered the European Union in 2004, and its double-digit growth rate toppled that of the rest of Europe within a year. (Reporter: Kristina Rizga. All images: Akim Aginsky. (Rizga and Aginsky reported from Latvia on a grant from the Pulitzer Center on Crisis Reporting.) As global stock markets overheated, Scandinavian banks showered Latvia with more cheap credit than ever before. Most of it flowed into the construction of condos and office buildings. The rest went into consumption of imported goods, weakening Latvia’s export capacity even further. In 2007, with no experience in construction, Valdis Novikovs landed a job as a plumber’s assistant that paid more than most Latvian doctors make and twice what he’d earned in England the year before. From 2005 to 2007 the cost of labor doubled, and inflation shot up to 13 percent. Many Latvians traveled to Germany and Finland to buy cheaper clothing and furniture. The Latvian government didn’t do much to slow the growth of the bubble. In fact, if anything, it stepped on the gas. Riga’s deputy mayor and millionaire, Ainars Slesers, who served in the Latvian parliament during the boom years, coined a phrase that seems to capture the government’s attitude during that time: gazi grida, or “pedal to the metal.” Unlike its neighbors Estonia and Lithuania, in Latvia the left-opposition parties were never part of the ruling coalition in the national parliament of Latvia since the collapse of the Soviet Union. What this has meant is that unregulated markets and corruption have dominated Latvian politics and have gone virtually unchallenged. With a 19 percent GDP drop in the second quarter of 2009, Latvia’s economy now looks like a race car that smashed into a concrete wall. Almost a third of Latvian households have mortgages for homes and apartments that have dropped 50 percent in value since last year–the deepest plunge worldwide. With the help of the EU, the IMF approved an emergency aid package of nearly $10 billion. But the IMF emergency loans have their own downside–they are conditioned on deep cutbacks in government spending. Government officials waited until the day after the municipal elections of June 6 to announce 10 percent cuts in pensions and 50 percent cuts in teachers’ salaries. They feared public reactions similar to those they’d seen on January 13, when more than 10,000 people took to the streets to protest spending cuts. What started as a peaceful protest that day turned into the worst riots Latvia had seen since the collapse of the Soviet Union in 1991. The cuts are affecting all areas, including healthcare. In March, the Ministry of Health shut down thirteen hospitals, including Adazi Hospital and Clinic, thirty minutes outside of Riga. Peteris Pultraks, head of Adazi Hospital, is concerned about the severe impact closings will have on rural areas, especially the impoverished south, where roads are unpaved and buses run only twice a week. One of Latvia’s largest plywood makers, Latvijas Finieris, saw a 50 percent reduction in the factory’s annual output since March 2008. The factory laid off a quarter of its workforce and asked the remainder to work four days a week. Outside of the capital Riga, among the hardest hit are owners of large farms who took out loans to expand their facilities. Now that prices of milk and grain have dropped, farmers are drowning in debt. In February, more than 1,000 farmers blocked the streets of Riga with their tractors, angry about the government’s failure to protect them against the onslaught of subsidized EU imports, which they believe contributed to their bankruptcy. The protesters forced the resignation of Martins Roze, Latvia’s agriculture minister. By the end of 2008, Valdis Novikovs had lost his job as a plumber’s assistant. He now helps bankrupt businesses sell off their material assets. One of his three storage units was packed to the ceiling with more than 800 pairs of imported shoes that used to sell for $40 and sold for just $5 a pair in May. The volume of his sales is increasing every month. The economic crisis has been a boon for the left-leaning coalition party, the Harmony Center, which represents primarily Russian-speaking minorities in Latvia. For the first time since Latvia regained its independence, an ethnic Russian, Nil Ushakov, 33, will be the mayor of Latvia’s capital. Kristine Drevina, 34, co-founded a new Latvian center-left opposition party called Jaunlatvija (New Latvia). Most members of the party are in their thirties, and many studied or worked abroad. Together with Ushakov, they represent a new generation of politicians in Latvia–young, progressive and with no immediate ties to the oligarchs. Drevina wants to reorient Latvia away from the blind dominance of unregulated markets and focus on stimulating small and medium businesses. Most Latvians expect a difficult winter, and potentially more social unrest, once high heating costs and reduced pensions begin to severely impact the elderly and the poor–and when unemployment benefits run out for the first wave of recipients. Dagnija Kamerovska, director of a homeless shelter in Riga, reported sharp increases among two new groups in May: experienced and educated men and women in their forties. One soup kitchen reported feeding occasional teachers and former bank employees in June. Many Latvians believe that the recent boom was damaging to the national psyche. From entrepreneurs to teachers to farmers and the unemployed, a surprisingly high number of Latvians said in May that, in the past five years, they’ve felt their country was headed in the wrong direction. They hope their country will emerge from this economic downturn with a more sustainable, diverse economy and a more inclusive political vision.