• 2004-01-22
Latvia is currently facing the single toughest test of its willingness to fight endemic corruption. Riding to power in October 2002 on a crest of popular indignation over bureaucratic fat cats, Einars Repse promised to crack down on graft and return a semblance of propriety to the workings of government. Considering Latvia has consistently been at the bottom on Transparency International's corruption index among countries acceding to the EU, Prime Minister Repse's platform was long overdue and much welcomed by all.

Upon assuming office, Repse naturally began thinking about his private, long-term plans. Eventually he concluded that he needed "to provide for his future" and make some investments. The prime minister subsequently took a total of four loans from two local banks - for a staggering sum of 500,000 euros - and began buying real estate, mainly in the countryside.
There is nothing wrong with this. Public officials should have the right to make investments just as private individuals, especially in real estate. To forbid it would be to penalize those in public service. Property prices are soaring, and those who don't jump in on the action early will suffer, particularly now that the Baltics are joining the European Union. Assuming Repse were to serve out his term until October 2006, real estate prices would be so extravagantly high by the time he stepped down that any such prohibition would amount to a penalty for his time in office. Specifically, given Repse's experience and potential value in the private sector, it is safe to assume that he can earn enough funds to pay off the loans. If not, he can always dump the properties.
The problem is with the loans themselves. The terms beg questions. According to reports, the four loans have varying maturities and interest, though the average rate is approximately 4.3 percent. For long-term loans, such as Repse's, this is indeed a low rate, and no bank can make money on it. The interest rate on long-term deposits (over one year) is 4 percent - 5 percent. After paying overhead and salaries, any bank would lose on the prime minister's loans. Even compared with short-term deposits - 3 - 4 percent - Latvian banks might be pressed to break even.
But that is their prerogative. Banks are privately held companies, and if they want to make loss-making investment decisions, it is their - i.e., shareholders' - right. We can't interfere. The real question is whether, in exchange for favorable terms, Einars Repse promised to assist the two banks - Hansabanka and Nord/Lb Latvija - in their expansion plans or dealings with the Central Bank, where he worked for 10 years. This, however, will be extremely difficult to prove.
What is damaging here is the perception of graft. The anti-corruption bureau, whose chief owes her position to Repse, must investigate this case to the full, and the prime minister for his part must cooperate and provide maximum transparency, just as he promised the Latvian people a year-and-a-half ago when he was on the campaign trail. Time will tell whether the self-proclaimed crusader against corruption has been playing a sanctimonious game.