RIGA - Prime Minister Einars Repse's recent acquisition of six rural land plots and an apartment in Riga that together cost approximately 350,000 lats (516,000 euros) and were financed through bank loans has created a storm of controversy in Latvia and put the head of government on the defense.
Prodded by Delna, the local chapter of Transparency Inter-national, the Corruption Preven-tion and Control Bureau has opened an investigation into allegations that Repse might have violated Latvian law by receiving the loans, issued by two local banks, at advantageous rates.
Current law attempts to limit potential conflict of interests by forbidding public officials to accept gifts or privileges from private entities.
"According to the law we are examining the situation to see if there is a conflict of interest," Diana Kurpniece, spokeswoman for the CPCB, said.
Inese Voika, head of Delna, cautioned the bureau to take special care in the investigation so as to avoid charges of favoritism, which would undermine public support for anti-corruption measures.
The current head of the CPCB, Juta Strike, owes her position to Repse after Parliament twice rejected her candidacy, and many observers are saying this case will be the true litmus test of the CPCB's integrity.
"We have asked that they explain as broadly as possible, even more broadly than normal, perhaps with outside experts if needed to determine whether it was illegal or not," Voika told The Baltic Times. She also emphasized the importance in determining the legality of the low interest loans to serve as an example for the future.
"This could be fully appropriate for a normal person, but since we are discussing a politician it could be different," Voika added.
According to reports, the seven property purchases were made with the assistance of four credit facilities from Hansabanka and Nord/Lb Latvija. It is not clear what the interest rate was for each of the loans, though several reports in the media have cited 4.3 percent from Hansabanka.
Analysts said that if this were true, the rate given to the prime minister would be significantly lower than normal.
"It is a very low rate. A typical rate would be between 5 - 7 percent. The deposit rate is at 3 - 4 percent, and banks won't be able to make any money if they loan it at 4.3 percent," a banker who wanted to remain anonymous told The Baltic Times.
Repse reportedly purchased an apartment in Riga, two beachside properties in Kurzeme and Vidzeme, a country home in Madona, two estates on lake Razna in the Latgale region and a 140 hectare plot in Latgale, according to the Latvian daily Diena.
Confronted with the mounting criticism, Repse defended his decision to invest in real estate. "You can't just hope for gifts from the sky. One must try to earn something too," he told reporters.
The prime minister explained that the real-estate market was the best way of investing since, as a public official, he is forbidden from engaging in commercial relations. Repse added that the property values only needed to appreciate by 5 percent for him to make money.
Delna's Voika admitted that politicians in many democratic countries invest in real estate and that the situation in Latvia is not unusual. "This is a very high level problem with democracy in general," she said.
Regarding finance, Repse, who was head of Latvia's Central Bank for 10 years, stated that he still held over 100,000 lats in savings as well as income from foreign investments, particularly U.S. securities. According to media reports he owns stock in some 26 companies, though it was unclear where these companies were domiciled.
An analysis of the loans show that Repse's monthly payments on the loans amount to 7,000 lats, while his after-tax income as prime minister in 1,500 lats per month.
The question of the favorable rates is also an explosive issue for Repse given that he rose to power in October 2002 on an anti-corruption platform.
To aid the CPCB's investigation, on Jan. 19 an amendment was added to the credit service law allowing the bureau to examine bank accounts that fall under investigative scope. The amendment, if adopted by Parliament, is set to take effect Feb. 1.
During the 2002 election campaign Repse had asked for 500,000 lats from the public to pay him for his services, and to guarantee his independence. According to Diena he received a little more than 300,000 lats.
Repse's speech on New Year's Eve included a plea to Latvians to move back to the countryside. The prime minister warned that if Latvians did not move there, then others would.