Prime Minister Aigars Kalvitis was in fine form this past week. When confronted with Latvia's ultra-high inflation 's 6.7 percent average in 2005, number one in the European Union 's he admitted that, yes, last year's rise in prices was high, but at least it was "stable."
This is an extraordinarily original spin 's one that, in all likelihood, the People's Party will carry throughout the year as the election campaign heats up. Envision it now, the elite of the Tautas Partija in a sultry meeting hall somewhere in Tukums, mid-summer 2006, and an impoverished senior citizen cries out that over the past two years his pension has been devoured by runaway inflation. To which the party leadership confidently replies, "But look, prices are stable now. They aren't rising any higher!"
An environment of rising energy prices and a roaring economy guarantees inflation, but not necessarily to the extent that we are witnessing in Latvia. Lithuania is undergoing the same dynamics and posted 2.7 percent annual inflation last year. Estonia has a budget surplus and was unable to keep growth of its consumer price index under 4 percent. These are challenging macroeconomic times. But Latvian policy seems to be fatalistic: if inflation is inevitable, then let's have fun while we're at it! At Latvia's current rate of inflation, the value of one's savings will be slashed in half in about five years. But no worry, PM Kalvitis assures us: at least it's stable.
The Tautas Partija should show its true face and rename itself Inflacijas Partija. Since coming to power in March 2004, the People's Party has been at the center of Latvia's inflationary government policy (and by that we also mean lack of policy). Party leaders have done nothing significant to stop the trend, compiled a budget with an unjustifiably large deficit, and disregarded the few noteworthy proposals - in particular, New Era's idea to reduce value-added tax on foodstuffs - that have come along. When confronted with hard questions, they blame world energy prices. On a couple occasions they griped about a lack of competition, but it remains to be seen what will be done in this sphere.
Uncannily, Latvia's substandard fiscal policy is being lauded in Estonia. There, the People's Union (though the name is similar, Estonia's People's Union has virtually nothing in common with Latvia's People's Party and ideologically is more akin to Latvia's Farmer's party), one of three parties in the ruling coalition, has proposed that the government begin running a deficit in order to finance infrastructure development, public works and ensure sufficient co-finance for EU projects. The model to emulate, says People's Union leader Villu Reiljan, is Latvia, where the government runs a small deficit and enjoys economic success.
How convenient. Mr. Reiljan forgets that annual inflation in Latvia topped 7 percent and that consumers are in a daze and can't keep up. Anyone care to vote for the Eestimaa Inflatsiooniliit?