• 2009-03-12

"Certainly we hope to do so, but it will not be quickly and there will be many difficulties."
Incoming Latvian Prime Minister Valdis Dombrovskis said this in response to a question about the incoming government's chances of restoring public confidence in political institutions, but he may just have well been talking about Latvia's dire economic situation.
The Prime Minster designate, a member of the center right party New Era, is continuing discussions on stringent budget amendments, including unilateral wage cuts across the public sector and widespread tax hikes.

Dombrovskis has already hinted at graver cuts should negotiations between international lenders on revising the country's budget deficit to 7 percent of gross domestic product prove futile.
But it's becoming increasingly clear that reducing Latvia's gaping budget deficit is like shaving meat from the bone.

Under the current agreement with international lenders, Latvia must keep its budget to within 5 percent of GDP.
To do so means trimming a whopping 700 million lats (996 million euro) from the budget.
Dombrovskis at least seems to be a realist about the situation and has not tried to cushion the looming affects of Latvia's hard economic landing.

However, there remains ongoing concern that deeper cuts are unsustainable given Latvia's fragile economic situation and will only plunge the country further in to recession.
But does the government have any other choice?

Leading economists concede that maintaining Latvia's loan security and the equitable disbursement of payments is vital to the country's long-term recovery.
However, receiving the full installment remains contingent on meeting the strict terms of the loan agreement 's conditions that may ultimately tip Latvia over the edge.
Paradoxically, Latvia, a country teetering on the edge of economic collapse after yeas of government neglect and inaction, is faced with making enormous, perhaps unsustainable, cuts where there is little left to trim.
Holding on this supposed savior of the Latvian economy could prove even more painful and dump further hardship on society's most vulnerable sectors.

The major lenders of Latvia's 7.5 billion euro rescue package have been in no mood to talk and have given little clue, at least publicly, of what parameters if any they would consider under a renegotiated budget deficit.
The former Ivars Godmanis-led government operated within a culture of political malaise and left behind a legacy of economic incompetence, where true reform was stifled by personal interest and petty power struggles.

The full extent of the previous government's disastrous economic policy has only recently become clear.
However, it remains questionable whether those in Dombrovskis' new Cabinet line-up can be judged any more qualified for the job.
Dombrovskis has taken over a country teetering on the verge of financial collapse and a political system that has lost the confidence of the people.
Can he turn it around? It's a daunting task.

Some would say insurmountable.