Saeima risks ‘do nothing’ label

RIGA - Latvia has lacked quality policies and reforms because politicians in Latvia try to appease voters too much, said Finance Minister Andris Vilks (Unity) in an interview with daily Diena, reports news agency LETA. “We still wish too much to be liked by society, the nation, the voters,” says Vilks, adding that the situation could change when society becomes better motivated.

As long as society does not understand reforms, there will be no pressure on politicians, and some of them will stall taking the steps that must be taken. “Do nothing, and you will be the good guy. That is the worst situation there can be,” says Vilks.
Vilks makes several critical remarks about the Union of Greens and Farmers (ZZS), the ruling coalition partners of Unity, which has drawn too many “red lines” which are not to be “overstepped.” For instance, ZZS is trying to come up with reforms or a different vision of the welfare system, which is taking too long, and the opposition is making use of this.
The finance minister admits that Unity made a mistake in the process of forming the government by not taking responsibility for any of the “problematic sectors” - welfare, education and health care. Unity had certain plans for these areas, and if it had these portfolios, reforms would have followed, he said.

Nevertheless, there are structural reforms taking place in education and welfare, also in health care, as employees in these sectors start to realize the importance of the proposed reforms, notes Vilks.

He goes on to say that funding should not be cut for any of these areas, and if they are unavoidable, they must be minimal. The money that is gained through reforms should be used in these same sectors where necessary; for instance, it should be given to universities and science centers.

The minister agrees with the Bank of Latvia’s warning that goods exported from Latvia may become non-competitive in the long term, and that the national economy of Latvia must become more competitive. Vilks goes on to say that budget consolidation took much time and effort, and he, as well as other ministers, devoted less to other urgent matters as a result.
Despite the lack of, or perceived lack of reforms in government, the state budget since 2009 has been consolidated, or shrunk, in the amount of 2 billion lats (2.8 billion euros) or 15 percent of gross domestic product, said Swedbank’s chief economist Dainis Stikuts. According to the latest monthly newsletter from Swedbank’s Economic Research Department, even though the goal of budget consolidation is to ensure sustainable economic development and budget in order to meet Maastricht criteria and introduce the euro in 2014, Latvia’s tax policy and fiscal discipline are still not good enough, preventing the government from reducing the budget deficit even more.

The newsletter states that even though the budget deficit last year was below the maximum level set by the agreement with the international lenders, with more precise planning and stricter fiscal discipline the outcome could have been better.
However, Swedbank’s economists have concluded that the state budget situation is improving faster than expected. The Saeima passed amendments to this year’s budget this past April, and the central government budget deficit has been reduced from 5.4 percent of GDP to 4.2 percent of GDP (based on money flow calculations).
Swedbank emphasizes that the progress achieved so far has been reflected in higher Latvian sovereign credit ratings, which allow the government to issue bonds on international financial markets on more beneficial terms and gradually refinance the country’s external debt.

The economists point out that so far, the government has been following the path of least resistance and, instead of well thought-out structural reforms, has carried out several temporary measures, such as reduced payments to the second pension pillar, forced dividend payments from state-owned companies and increased taxes.
Rather than looking to the next election, Latvia’s politicians need to get down to work and decide on fundamental structural changes - assess what it should really be doing, and not doing -  in its operations and then implement these changes.