Lats – The Latvian National Currency

The famous Five Lats silver coin from 1931

Today June 5 Latvia made important historical step- the European Commission and European Central Bank have approved Latvian entry into the Eurozone. Latvia will join the Euro club in 2014 and replace its historical national currency the Lats (LVL) For years Lats was the symbol of the Latvian national sovereignty. It was also one of the most beautiful European currencies. It will be no wonder if in following decades Latvian coins will become the hit among the collectors. This article is about this currency and its history.

When the Republic of Latvia was proclaimed in 1918, it had no national currency. It was a currency chaos Russian Czarist rubles and German Ostmarks were all used at the same time. The first Latvian national currency was the Latvian Ruble that was supposed as the provisional currency until peace and economical stability was to be reached. The law establishing Lats as the national currency was approved in 1924. The law was made after long discussions. The Finance Minister Ringolds Kalniņš (Kalning) desired to remove state treasury notes and use the state gold fund to issue golden Lats. His plan was influenced by banker Izidor Friedman who advised to fill the state treasury with gold. However, the parliament turned down their plans as the Latvian golden reserves were too low and extra golden import was required to make golden Lats. Kalnings was forced to resign. On November 14, the parliament voted to keep state treasury notes and introduced the dual currency system. The Ministry of Finances was responsible for the state treasury notes while the Bank of Latvia emitted the paper currency. There was 10, 20, 25,50, 100 and 500 paper banknotes. And 1,2 and 5 silver Lats. 1, 2 and 5 Santims were made from bronze and 10, 20, 50 Santims were made from nickel. The name Santīms came from French word centime. Centime was used in France and is still used in many of its former colonies.

Latvian banknotes had national motives. The women in folk costumes, national heroes like Krišjānis Valdemārs and Jānis Čakste. The Five Lats silver coins featuring the profile of Latvian women in folk costumes were the most famous of those times. Nicknamed Milda – it became a symbol of the independent Latvia. During the Soviet occupation the 5 Lats silver coins were kept as treasures a symbolic reminder of the past.  On 1939 the Authoritarian leader Kārlis Ulmanis desired to make silver coins with his portrait. The sketch was made and despite coming war British coin mint received orders to issue them. The Soviet occupation halted this, however a prototype of this five Lats coin with Kārlis Ulmanis on it was made.

Latvian 25 Lats banknote

The Soviet occupation ended the life of Lats. After full annexation Lats was replaced with the Soviet ruble. Latvian Lats were kept by families as memorabilia. Others gathered them and sold them to collectors. After the regain of independence these old Latvian Lats became even more valuable.

Already in 1988 first calls of restoring the Lats were made. An art competition was made for new Lats design while official currency was still the Soviet Ruble. On July 31 1990 the Supreme Council of the Republic of Latvia (still unrecognized by Moscow) issued law for making the currency system for Latvia. Discussions about the new Lats  lasted all 1900, while Latvia was not still fully sovereign. Latvia was still pretty much dependent on the Soviet Currency. After full independence on August 1991 Latvia again used the old scheme. Before Lats the Latvian ruble was used as the interim currency. People nicknamed them repšiki after the president of the Bank of Latvia – Einārs Repše.

On 1993 Lats again returned in peoples wallets. 5, 10, 20,50, 100, 500 Lat banknotes were issued. Five Lat banknote features oak the Latvian national tree, 10 Lats shows the view of the river Daugava, 20 Lats has the Latvian national housing. 50 Lats has sailing ship and the 100 Lats features Krišijānis Barons the Latvian intellectual worker. 500 Lats features the famous Milda from historic five Lats silver coins. 1 and 2 Lats are coins. 1 Lats coin has salmon on it. Interestingly the 1 Lats with Salmon is very similar to the Icelandic 1 krona that also has fish on it. For years the Bank of Latvia has released many special coins dedicated to national events or sightings. Collecting these coins are the national sport for the collectors. Latvian special coins have won many international prices.

Special Lats celebrating the beginning of the 21th century

In 2004 Latvia joined the European Union. Latvian government set path to fulfill the Mastricht criteria to join the Eurozone. It was a long road thwarted by economic crisis however on 2012 Latvian government finally voted for joining the Eurozone. Despite the general distrust on the Euro and political campaigns made by many groups on both political wings, at January 1 2014 Lats will be replaced by the Euro. This time this historic decision is based on the general will of the Latvian people as the majority of the Latvian citizens voted for joining the EU. Estonia had already joined the Eurozone on 2012 and Lithuania will probably do it in 2015. As historian I will not go into speculations about the future of the Eurozone and its positive or negative effect on the Latvian economy, however Latvia had do to this sooner or later. The joining Euroze is a question of geopolitical importance. Even Poland with their Zloty will do it someday and its the historic responsibility of the Latvian government to carry out this transition successfully on the behalf of the Latvian people.

The Future Latvian Euro coin

Latvian Finances and Economy 1920-1940

From 1920 to 1940 Latvia was one of the leading exporters of butter, beckon and other goods across Europe

World War I did a great damage to all territory of Latvia. The War of Freedom was no less damaging and true peace only came to Latvia at August 11 1920 after peace agreement with Soviet Russia. Now Latvians had the chance of rebuilding what was lost and make whole new sovereign economy for the benefit of the Latvian people.

One of the first issues was the lack of the national currency. German Marks, Ostmarks (German currency for occupied Eastern regions during WWI), Ostrubles, Czar Rubles, Kerensky Rubles were used in same time sparking currency chaos. On March 27 1919, the Provisional Government issued directions in exchange rates. One Latvian Ruble equals 1 Ostruble, 2 German Marks, 1,5 Czar Rubles. The main source of income for the government was money emission that helped to cover the war costs and administration fees. From 18 November 1918 to 1 April 1920 37,9 millions of paper money were emitted. On 18 March 1920 the Latvian Ruble was declared single official currency in Latvia.

However, inflation was on the rise, the price of rye bread rose from 2,25-2,40 rubles 10,8-12,0 rubles. Government issued more directions to stabilize the ruble, also the preparations for establishment of new stable national currency Lats followed. On 3 August 1922 1 Latvian Lats equaled 50 Latvian Rubles, and Lats was fixed according Swiss Frank rate. On 1 November the Bank of Latvia was established. It also had commercial service rights. At 1929 there were three state banks (Bank of Latvia, State Land Bank and Latvian Mortgage Bank) and 19 private commercial banks.

Latvian governmental budget during the first years of independence had debts, until 1922/1923 for the first time had surplus that was kept until 1929/1930. The main source of income was taxes, state monopolies and gain from state enterprises. The main priorities were state security, education and capital investments. Two main state monopolies were flax and ethanol. Largest state enterprises were the bank, postal service and railroad service.

The Agricultural reform drastically changed the economic situation in the country. Before the war 53% of land belonged to 2% of landowners mostly Baltic Germans. Latvian government decided to change that by making special State Land Fund that gathered 61% of land, 45% of it agricultural. Previous landowners were stripped of their large possessions. This radical move changed the Latvian countryside in small farm economies. 54, 243 new farms were made.

New Farm building in Latvia

Latvians put large efforts in agriculture. During the first years after the war Latvians had to import crops, because of low harvest and the fact that most new farms were more effective in cattle production. Also the crop prices in global market fell down as the butter prices rose up. Because of this exports of butter, beckon and eggs reached great heights. The butter industry was one of the most progressive and until 1932 one-third of all export. Latvia also exported flax and timber to whole Europe.

Before the war, Latvia was one of the main industrial centers of the Russian Empire. After German invasion, large part of equipment, even workers was evacuated to Russia and the new Bolshevik government was not wiling to give it back. After the war Latvian industry worked mostly for inland needs. Latvian government had to subsidize the struggling industry for many years. However, the foreign capital from Germany, Great Britain, Soviet Union and others helped to get back on the track.

On 1929 Latvian export rose up by 10 times, however import was still larger than export. The main importer was Germany; the main source of export was Great Britain. After trade agreement with Soviet Union in 1927 export with that country started to rise up. With other neighbors – Estonia, Lithuania and Poland the import was greater than export.

Latvian export goods ready for shipping

The Great Depression reached Latvia on 1930. Crisis begun with drop of wholesale prices, the drop of prices for Latvian export goods and the breakdown of Latvian state gold reserves and foreign currency reserves. On 1931 the Bank of Latvia stopped issuing credits. Many companies went bankrupt. Banks took the first hit. Latvian banks suffered from German bank troubles making them impossible to settle with their depositors. After Great Britain devaluated their currency and canceled the golden standard the Bank of Latvia lost 2,1 million Lats. Latvia unlike Estonia kept the golden standard and issued many regulations to cancel unrestricted exchange to gold or foreign currency.

 Latvia had to sign clearing agreements with France, Great Britain and Germany to ease export costs during the crisis. The Nazi rise in power on 1933 caused economic disruption between Germany and Latvia as social democrats and Jews issued a boycott of German goods. Germany answered by halting butter exports causing great financial losses. Latvian government had to back down and make the boycotting stop. Also the export with the Soviet Union weakened as the export orders from the Soviet state ended. Almost all transit now went to Germany.

As the grocery product prices since 1927 begun to drop, the traditional Latvian exports brought smaller revenues. Government tried to lower import and raise export. Grocery import was halted, as foreign crops could be replaced with homegrown ones. With exception in 1937 because of dry summer, crop import was halted along with sugar import. Latvia could fully sustain itself with its own grocery production.

Industry suffered great losses, foreign capital went away and purchasing capacity dropped. As the trade agreement with the Soviet Union ended in 1932 many large industrial companies suffered losses. However, the worst of the crisis ended in 1933 and on 1934 during last months before the coup Latvian economy was again in the upswing. The government debt had dropped from its highest point 24, 2 million Ls 1931/1932 to 7,8 million Ls in 1933/1935.

The coup in 15 May 1934 was not caused by economic reasons rather political. However, Kārlis Ulmanis made significant changes in economic system making it more centralized. He issued a corporate chamber system forming four chambers: Trade and industry chamber, Agricultural chamber, Craftsman chamber and the Chamber of Labor. Such model of economical control was popular among many European authoritarian countries. The example for all was Fascist controlled Italy.

Authoritarian government made a great deal by fixing the crucial farmers debt problem. Agricultural auctions were canceled, debt rates for farmers were lowered and payback period was extended. New law allowed state corporative revision commission to change of fire members of the corporate boards. With that the state granted itself more power to control largest enterprises.

The new economy by Kārlis Ulmanis was based on protectionism and state enterprises. A new state owned Latvian Credit Bank was formed to make credit reorganization. State took over many private companies like vehicle factory “Vairogs”. Until March 1939 there were 38 state enterprises. Latvian industry started to recover. Textile, food, metal and machine industry begun to flourish. State owned industrial company VEF produced radios, telephones, MINOX cameras and even airplanes. “Vairogs” released first private cars based on Ford models.

The presence of foreign capital significantly dropped, however the construction of the first hydroelectric station at Ķegumi involved large investments from Sweden.

On 1936 Lats was fixed to British Pounds causing partial devaluation of Lats. Devaluation caused inflation and other troubles; however at 1936 the Latvian export gross total rose up fast and import went down. The export balance was positive and things were looking up good in the late thirties. However, an influx of agricultural foreign workers in later years started to become a problem. Because of the lack of native workers, people from Lithuania and Poland came to work in Latvia. It caused social and political problems and fully emerged after Nazi-Soviet invasion in Poland.

The great advancement of the Latvian economy was stopped in 1939. As WWII started Latvia declared full neutrality. Government issued regulations in trading Latvian recourses and prohibited Latvian ships from sailing under foreign flag. Lats was removed from the British Pound rate.

As Germany blocked the access to the Baltic Sea, Latvian traders were unable to send their productions elsewhere but Germany. All major ties with Great Britain were cut. On 5 October 1939 Latvia was forced to sign Mutual Assistance agreement with Soviet Union. Few days later both sides signed trade agreement allowing Latvia to export more to the east. The secret protocols of the Molotov – Ribbentrop pact included Latvia into Soviet sphere of interest. Similar agreement was later signed with Germany then a Soviet ally.

On 17 June 1940 Latvia was occupied by the Soviet Union and annexed in 5 August 1940. The sovereignty of Latvian finance and economy was canceled. Germany viewed this with anger, because they needed Latvian exports. Germany and Soviet Union both had different understanding over meaning of the “sphere of interest”, and Germans did not expect the occupation and annexation of their trade partner. That was one of the reasons that lead to German –Soviet conflict.

Latvia managed to recover from WWI damage and reached growth in trade and industry. For many years Latvian state budget was balanced with surplus. However, the Great Depression did a great strain on Latvian economy. But, Latvia managed to recover from the crisis and again reached growth at 1934 just before the coup. The coup by Karlis Ulmanis did not end the crisis as it was mostly ended before him. His policy only changed the economical system not the positive course of Latvian economy. Kārlis Ulmanis semi-centralized economy was successful for some time until the hardships of WWII brought end to it. Soviet occupation, German invasion and war ultimately destroyed many achievements of independent Latvia. The complicated story of Latvian soviet economy is to be told in future.

Latvian produced private cars

Latvia 2012 The Year of Quarrels

As every year comes to conclusion this site gathers all the important events that happened in Latvia. Last time I called the year 2011 as the year of Troubles as the emergency elections, bankruptcy of bank Latvijas Krājbanka and national ethnic issues were truly troublesome for Latvia. This year will be called the year of quarrels because of the various issues in political fields that often sparked quarrels between politicians and the various groups of the society. This was the year of reform attempts that faced great contra-reaction from those who opposed the changes for legitimate or illegitimate reasons, many of the government cabinet ministers were asked to resign in almost regular basis by various groups of society. Also the inner instability within the government coalition is clearly visible although the government still works and most of the ministers except one still keeps his seats. This was an interesting year full of discussions and actions and the main events and themes will be outlined here.

The two state language referendum fails and issues about other possible referendums continues.  

The necessary 180 000 petitions for initiation for making Russian as the second state official referendum was gathered at the end of the last year by Russian nationalist radical organization “For Native Language” led by Vladimirs Lindermans the ex national Bolshevik. It may be that the referendum would not take place if the Major of Riga Nils Ušakovs would not join the campaign along with other members of pro-Russian leftist party the Harmony Center. Although both sides denies it the Harmony Center and the Linderman party has secretive ties together. Linderman and his radical members saw the referendum as their kick-start for their political career. In 2013 a municipal elections will take place and Linderman hopes to enter the elections in some municipalities with significant Russian population.

The referendum itself took place in 18 February. 70,66% of the voters or 1 091 757 citizens of Latvia. 74,80% said decisive no to two state languages, 24,88% said yes and Latvian as the sole national language was kept secure by the majority of people. The great voter activity was achieved by calls from all Latvian parties to take part in the referendum and say “no” to show the strong position of the Latvian people. On the other side of the front those who voted “yes” wanted to show their dissatisfaction with the current Latvian government and their national position.

The example of what could be achieved by such referendum did not went unnoticed by other Russian political groups. The political party “For Equal Rights in United Latvia” that has lost last two elections initiated the referendum to give citizenship to all non-citizens of Latvia. This sensitive issue was raised by them to resurrect popularity of the forgotten party. There are still about 15% of Latvian people who are non citizens that live in Latvia. Most of them are Russian speakers the ones that entered Latvia during the Soviet times as immigrants. By the citizenship law made in 1995 these people who had no legal nexus with prewar independent Latvia was not eligible for citizenship as they or their ancestors did not resided in Latvia before 1940. The Soviet citizenship was not taken into account as the Latvia was occupied by the Soviet Union. However, during the last 20 years the legislation allowed most of the non citizens go trough the naturalization process to acquire the Latvian citizenship. But, some of them did not because of lack of language skills or strict stance against naturalization. One part of them acquired Russia citizenship that was more easier for them and maybe more suitable.

The lawmakers saw great danger in using referendums as tools for making political instability and national ethnic troubles and rushed to change the referendum law to make the petition gap larger than 10 000 sign-ins. As always the legislation process was slowed down by the opposition parties and various groups and experts. The first version accepted by Saeima (parliament) was turned down by the president of Latvia Andris Bērziņs. At last the law was passed in November that now required 30 000 sing-ins in the first step and then after 2015 there will be only one step with 154 000 sing-ins. Before that the first step required 10 000 sing-ins and then 150 000 sing-ins. Opposition and liberal political groups said that this makes initiating new referendum impossible and the opposition parties are threatening of gathering sing-ins for referendum against the new referendum law.

But, the gatherers for citizenship free giving referendum achieved their goal and gathered 10 000 sing-ins for the first step. But the lawmakers saw their project for the changes in the Satversme (constitution) as unconstitutional and against the principles of the state. This was approved by various law experts and now the pressure on Central Election Commission was to not approve the referendum project for the next sing-in step. And after month of thinking in November the Central Election Commission for the first time decided to turn down the referendum project for the next sing-in step. Some political commentators saw this as threat to democracy while Russia again spread out the news about “ethnic discrimination in Latvia”. While the all the attempts of preventing destabilizing referendums may really hurt democracy the history shows that in most cases the referendums in Latvia were mostly based on national issues even before WWII and really made divisions and instability within society.

But the Russian radicals along with Vladimir Linderman continued to be active players in politics. The Linderman’s newest project is the Autonomy of Latgalia (Latgale) region from Latvia. Since Latgalia had the highest percent for support for Russian language he thinks that its rightful that Latgalia deserves autonomy. He however did took account of Latvian Latgalians who may not think so. Because of these actions his office and apartment was raided by the Security Police. Security Police also has noted that his party is illegal since he did not made all the steps to fully register his party but because of gaps in laws the society and party registry cannot cancel his party existence and Linderman still presses ahead and hopes to gain success in 2013 municipal elections even though he is not a  Latvian citizen.

The fight between parties within coalition 

The emergency elections in 2011 was won by Harmony Center but it stayed in opposition and because of support for two state referendum it may stay there until next elections. The Green Farmers Union has bad relations with Unity and the Reform Party that categorically dismiss any cooperation with it is also locked up in the opposition. With that that the centrist Unity, liberal Reform Party (ex Zatler’s Reform Party) and national conservative National Alliance along with six non party members the “Olšteins six” has great chance to lead the country for three more years with the leadership of Valdis Dombrovskis who was lead the state since 2009.

But it seems that Reform Party and especially the National Alliance dislikes the bossy attitude by the Unity. The latter has made many sabotaging and blackmailing attempts on Unity. The first one by them was the resignation by the Minister of Justice Gaidis Bērziņš over issues of returning the Jewish property. For years the Latvian Jewish community has asked to return or at least compensate the lost property of various Jewish organizations after the WWII. Bearing the fact that these organizations were many and their property very valuable the various Latvian governments were unable to met the Jewish demands. The government of Aigars Kalvītis was ready to pay large compensations but then changed their minds. But, the national minister Gaidis Bērziņš who first firmly declined any chances of looking at this issue again, then resigned after he was asked by Prime Minister to consider it after-all he resigned because of “discrepancy of opinions” between Ministry of Justice and the Prime Minister and National Alliance and the Unity. It’s a question if this move was dictated by antisemitism, or just inter rivalry between nationalists and Unity. Others however note that Gaidis Bērziņš had secret ties with oligarch Aivars Lembergs and was caught up in corruption therefore he used the Jewish question as the way to hide his true issues with the law. Other reason was simply the fears by the nationalist party to lose its hardline voters.  Whatever was the true reason this made a strain on Latvian-Jewish relations.

But that was not enough from the nationalists and they turned to blackmail. At the October in time of new budget approval the National Alliance threatened not to vote for the new budget if significant amount of money would not be allocated for the demographic policies that truly require attention. If the budget is not approved the government must resign. After load quarrels and  political bargain National Alliance achieved at least half of their demands bringing new financial improvements for the new parents.

However, the National Alliance had another antic in mind. Ahead of approving decision of joining the Eurozone in 2014  five members of the national fraction declared that they are not sure about voting for joining Eurozone. For two weeks a rest of coalition attempted to convince nationalists to make up their minds to vote for Euro. If they would vote against the chance to enter Eurozone in 2014 will be missed and Latvia will not fulfill the obligations to EU. The Nationalists decided that this antic is too dangerous and decided to vote for Eurozone. The hardline nationalists and ultra-patriots now saw National Alliance as traitors and their gamble backfired against themselves.

The reforms and counter-reforms

When ex-president Valdis Zatlers called emergency elections he said that new swift reforms needs to take place. In so he formed his own Reform Party. And after entering coalition the Reform Party gained power of Ministry of Education, Ministry of Economics, Ministry of Regional Affairs and Environmental Protection and the Ministry of Foreign Affairs. While Foreign Minister Edgars Rinkēvičs and the Minister of Economics Daniels Pavļuts were mostly praised, the Minister of Education Roberts Ķīlis and the Regional Minister Edmunds Sprūdžs met most stiff opposition to their reforms.

Roberts Ķīlis is a social anthropologist with education in Cambridge University. With his pro western outlook and admiration to western education system he had ambition to completely reorganize the Latvian education. He has many ideas like extending the learning semesters, replacing text books and workbooks with tablet PC for every schoolchildren. But for Academic Education he has even more ideas: removing study budget places completely and replace them with vouchers and force students to take credits compulsory. Closing many higher education facilities like Universities and colleges because they are inefficient and make one University that is in Europe top 10. While on ideal basis these ideas seem great in practical basis they are draconian. The whole educational system that is based on Latvian limited resources cannot adopt to such reforms altogether as the most of the personnel of the educational system are not ready for such changes. Therefore,  most of Higher education facilities called Ķīlis to resign as Ķīlis backfired calling them treacherous stagnates. His campaign against the Higher Education will bring more bad than good as many youngsters seeing this will choose to go to abroad to get Higher education. In the end the stiff quarrels between Ķīlis and education representatives ended with health problems and surgery for Ķīlis. He however stays defiant and promises to return after the recovery. But, now even the Prime Minister Valdis Dombrovskis has doubts in him.

The Regional minister Edmunds Sprūdžs has no Higher Education yet, but great plans and ambitions. One his ideas that came trough but faced great stiffness from the municipalities was to scale down the size of the deputy seats in Town municipalities. Other his great struggle for he is known is the fight against the oligarch Aivars Lembergs the major of rich port town Ventspils. Because of his corruption charges he has no full rights of authority as the major. But the prosecutors thought that he still uses his major title to affect the courts. So Edmunds Sprūdžs decided to discharge Lembergs from his major duties. Despite the fact he already was in fact discharged by the prosecutors.  But Lembergs called this decree illegitimate and still went to work as majors office as usual and went to court to appeal against the sentence. With the elections drawing again in 2013 Lembergs has great chance to become major again because of vast support from citizens of Ventspils despite all the corruption charges. And with that the eternal fight against Lembergs will start once again.

Ķīlis and Sprūdžs are political amateurs with great plans, but with lack of experience. But these two ladies from Unity party has big political experience but still a great opposition. The Health Minister Ingrīda Circene has always used iron fist policies during his previous terms as a Health Minister and she is using them again now. She was asked to resign because of inability to raise pays for doctors and making new provisions for family doctor qualifications. She also came out with strict provision that those who only pays taxes are eligible for state paid healthcare. In situation were many are not able do that it would sound draconian.

The Minister of Welfare Ilze Viņķele from Unity is also a iron lady who has many great ideas but very straight assertive way of communication that many would dislike. When she was interviewed in Latvian Playboy magazine she was asked why the pensions for people who worked in Soviet times are much lover than they earned back then. Her explanation shocked the Latvian Pensioner Federation and she was asked to resign. Before that she was attacked by conservative organizations about support  for children’s book that promoted gender change. Viņķele is called as the next possible replacement for Valdis Dombrovskis as she has already lead few government meetings in the absence of Dombrovskis but her strong language may scare away the weak hearten  voters.

The photo Radar saga

The last notable point for quarrels was the photo radars. The photo radars are seen as the important tool for road safety and minimizing  the traffic accidents. They are in Estonia, Lithuania and Poland and the rest of Europe and so logically the Latvia needed them too.

But, as in many similar events in Latvia the way how the photo radars were introduced brought them to their failure and removal. In neighboring countries the photo radars are set up and maintained by state police. But, in Latvia because of lack of money the photo radars were set up and maintained by private firm “Vitronic”. The problem was that the contract between Vitronic and police allowed Vitronic to take half of the money earned from speed fines. Of course the private company was interested not in preventing the speed limit breaking, but to gain as much of money from it. So the dreadful green boxes were placed   along all the streets of Riga, often disguised and because they were portable their location always changed. The contract required to make stationary radars but the company was slow to that also no radars were placed outside Riga. The great resentment from drivers was big, the radars were vandalized, others put home made signs to warn drivers of the hidden radars. In the end the contract with great expense was broken and radars disappeared from the streets before Christmas.

Prospects for the next year

The main event in 2013 will be the state-wide municipal elections. The main battleground will be Riga, were Latvian right-wing parties will be battling to oust the pro-Russian Major Nils Ušakovs along with his Harmony Center party. For years the young ex-journalist Nils Ušakovs has become powerful, arrogant and eccentric ruler of the main city. His city government works as caviar socialdemocrats, who spends a lot of money on popular decisions like free tickets for pensioners and school students while shunning the frugal state government. Despite the large spending and placing the party members in public city enterprises Riga has still many problems and the city government has sunken into corruption.  But, because of Russian speaker majority that adores Ušakovs the right-wing parties will have to show a stiff fight to mobilize against Ušakovs.

The next great issue will be the economic recovery and the drive to Euro. The opposition against the Euro in Latvia is great and often irrational, so the forces who will call for referendum to join Eurozone will be strong. Although Latvia technically already agreed to join Eurozone in 2003 when voting for EU membership, many people don’t understand this. If such actions will be taken the joining the Eurozone will be canceled and Latvia EU membership will be doubted in general. Some big country across the Eastern border will probably like this.

And off coarse as the reform process has not yet finished if not even went few steps further the quarrels between ministers and the representatives will continue. The year 2012 was the year of Great Fire Dragoon so no wonder this year was quite stormy all over the year. The next year is year of Snake so lets look out for treachery and intrigues judging by whats to expected they may be many of those. But also the Mayan calendar ended in 21 December bringing new Earth time cycle, the beginnings and  endings are always difficult, but whats to come in between should be worth to work for.

VEF :The Rise and Fall of Latvian Industrial Legend

The main building of the State Electrotechnical factory (VEF)

VEF stands for State electrotechnical factory. For many decades it was the main producer of the electronic products – radios, telephones, cameras and others. Also it even produced airplanes and cars. It was the pride of the Latvian working nation in time of independence and during the Soviet occupation. However the drastic change in economy after the collapse of the USSR teared down the industrial giant. What is left of it its only small remains of the Latvian industrial legend.

The beginning of VEF  was in 1919, when Post and telegraph department  opened repair shop to fix communication equipment. In 1922, first telephones were produced. In first 1924 crystal detector radio receivers were made. On 1927 already 700 people worked there. The factory was located in former electromechanical company “Union” buildings. The third factory block was built by German architect H. K. Scheel. It was a luxurious eclectic style building with allegoric statue of Zeus. In 1934 company was named State Electrotechnical factory and was intended as the flagship of the Authoritarian Latvian industry. The regime invested large funds for this factory to gain important revenues for the state.

  In thirties VEF produced telephone centrals, telephones, radios. The most famous VEF invention was mini camera Minox. It was sumbminiature camera designed by Baltic German Walter Zapp. It was intended as luxury product, but it became extremely useful for spies, because it was so small that could be easily hidden. Originally Walter Zapp presented his design for Estonians, but they did not see it useful.  The original Riga-made Minox had a brass chassis covered in a stainless steel shell, which telescopes to reveal or cover the lens and viewfinder windows, as well as to advance the film. It was equipped with a parallax correcting viewfinder, which was coupled to a Cooke triplet type Minostigmat 15 mm/3.5 lens. The lens was capable of focusing as close as 20 cm, and, due to its small image size, provided such depth of field at full aperture that a diaphragm was deemed unnecessary. The maximum focus zone was about one meter to infinity. In front of the lens was a metal foil curtain shutter, which was itself protected by a window. These were advanced features at the time for any camera, regardless of size. Dimensions: 80 mm × 27 mm x 16 mm; weight: 130 g. After the end of the war Minox was continued to be produced in Germany.

Minox the smallest camera at those times

Also the wooden hand-made radios was the success of the factory. With its world band shortwave technology Latvians could listen to radios stations  around whole Europe. In times when there was only one state radio station they was pretty useful.  The stylish VEF radios were the sign of wealthiness in every Latvian family.

The VEF Antique radio from the thirties

VEF also attempted to construct airplanes. They were the one of the first monoplanes in the world. 20 sports planes and 6 cars were built. The world war halted further production of them. In every month VEF produced ~500 telephones ,  400 telephone centrals and >1500 radio receivers.

VEF produced sports plane

The world war brought misery for the company as factory was plundered and damaged. The boiler house was destroyed along with many factory blocks. However, the new Soviet government re-opened the factory because they saw it as the key for industrialization of Latvia. Already in 1945 telephones and radios were produced once again. The popular products were telephone model TA-60. There were many radio models like “Lukss”, “Latvija”, portable radio “Tūrists” and “Spīdola”. Again the excellent worldband technology allowed citizens of USSR to listen to foreign stations. However, the Soviet government saw this as menace as the listeners tuned to “Voice of America”, “Radio Free Europe” and other Western propaganda stations. To fix this Soviets attempted to jam the stations and arrested dissidents who were caught listening to them. The radio’s were used as evidence.

The famous VEF Spīdola worldband receiver

 The factory was so powerful that it got its own medical clinic, hospital, sanatorium. In 1960, the VEF Culture Palace was built. It is a large neoclassicism style building with stage suitable for theatrical plays, concerts and cinema. It has been home for various artistic and cultural activities ever since. Also VEF was involved in sports as it got its own sports club. The every week VEF news were published in newspaper “Vefietis”.

The VEF palace of culture

In 1985 VEF produced 856 000 radio receivers, 2, 8 million telephones. Materials, resources and semi-finished products were supplied from other parts of the USSR. The productions were exported to >50 countries mainly Soviet allies.

 The VEF dependence on Soviet market was its main vulnerability after regaining independence. The chaotic privatization process  caused great losses for Latvian industry. Since the VEF was organized in many structures they all separated from the main body and became privatized. >30 private enterprises appeared, but not all fared well and vent bankrupt. The lack of resources and support from Russia halted the production of the telephones and radios. The growing foreign import of electronic products put VEF products out of competition. However also a notable factor was the Soviet military involvement in the factory work. According to some sources 80% of the VEF production was secretly allocated for the military means. Since after 1991 the Soviet military complex was no longer existent the VEF along with other such factories could no longer keep up. During the Soviet era it was a common practice to use civilian industry for secret weapons production.

The main buildings either became deserted or used for other purposes. Large factory block built by Soviets became Domina supermarket, however the VEF own universal shop now is abandoned and is at the state of destruction. Some remains of VEF is company “VEF un Ko”, that produces phones, radio’s and lamps. Because of the large influence of foreign imports their products are not very popular. And their quality cannot compete with foreign products. Also “Radiotehnika” produces audio equipment.

The most visible remains of the VEF legacy is basketball club “VEF-Riga”, today its playing with moderate results in Eurocup and Russian basketball league.

 Its too late to speculate was their any chance to save the VEF. If the government would take more pragmatic approach in transition to free market economy many state enterprises could be saved. But, the shock therapy and uncontrolled privatization destroyed the VEF legend. Also the heavy Soviet military involvement and the breakdown of the Soviet market played a key role. It’s hard to speculate if there would be no world war the VEF would continue to exist as free market enterprise and would compete with other companies.  But, the legend of VEF will always live within Latvia and former Soviet Union.

The present day products by the VEF

Ločmelis, Jāzeps,(2000) VEF – mans liktenis, mans mūžs. Rīga : Inženiera Jāņa Lintera fonds.

http://www.bedre.lv/index.php?id=read&show=225

Prikulis, Juris. (2012)Starptautiskā konference “Padomju Savienības nodarītie zaudējumi Baltijā”. Padomju Savienības nodarītie zaudējumi Baltijā : Rīgā, 2011. gada 17.-18. jūnijs : starptautiskās konferences materiāli. Rīga : Latvijas Okupācijas izpētes biedrība,

 

Latvia 2011 The Year of troubles

The year 2011 will certainly go down in history as one of the most intense years in history. The Japanese Disaster, Arab Spring, US debt crisis and Euro zone problems. But, also in Latvia the year 2011 was time of important decisions, political and national collisions and even newer economic problems. This post is about the main events in Latvia in 2011.

1. The Decree Nr.2

Since 2008, Latvia have been deeply affected by economic crisis. In late 2008, state on the brink of bankruptcy. A deal with International Monetary Fund was signed. Since then all previous governments have done a large effort to consolidate the state budget. The consolidation means drastic cuts in all state sectors, high taxes and lot of unpopular decisions.  And that surely means a large public dissatisfaction with the government and the Saeima (Parliament). Calls for dismissal of the parliament has been popular since 2006. The 9. Saeima was met with protest because of the so-called Positivism campaign that allowed the wining Peoples Party to fund the election campaign by surpassing the official election funding limits. In result the prime minister Aigars Kalvītis kept its seat for another 4 years. But, his second term was unsuccessful and sparked calls for dismissal of Saeima. The acting president Valdis Zatlers who only had such rights hesitated to take this step. In 2009. he was actually threatening to do that, but again hesitated.

But in May 28, he suddenly lost any hesitation and issued Decree Nr. 2. The Latvian constitution allows the President to call referendum to dismiss the parliament. If the people vote yes the parliament is dissolved if no – president must step down. But why Valdis Zatlers choose to dissolve parliament only nine months old when he was asked to do this many times earlier.

The official reason was the vote in the parliament that prohibited the state anti-corruption service to make search in deputies Ainārs Šlesers home. Šlesers is well-known political player and oligarch and he was accused for corruption schemes. However, since he was an elected deputy, he had to be handed over by deputy vote. And his party voted no along with quarter of deputies abstaining. So his handover failed.  The ballot was hidden. Those who were abstaining were members of Green Farmers Union and the Harmony Center. By this the parliament got involved in conflict with the juridical power. Valdis Zatlers saw this as a important breach by the parliament and called to dismiss it.

But that was just the official reason. First, Valdis Zatlers was on the finish of his presidential therm and seek re-election. But, he must be elected by the parliament. And he got pretty unclear promises from elected parties. And then alternative candidate appeared. His name was Andris Bērziņš and he was elected deputy of Green Farmers Union fraction. In past he was director of Unibank or Seb Bank and he a shadowy figure that appeared from nowhere. Before 28, May Valdis Zatlers was more and more aware that he may not be elected. So he may decided to dismiss the parliament to punish it for not supporting him and form his own party to continue his political career.

Another reason may have been his sympathy for the Russian party Harmony Center. There are speculations that before his decision he had conversation with the Saeima speaker Solvita Aboltiņa and Prime Minister Valdis Dombrovskis  where he demanded to form new government with Harmony Center that was in opposition at that time.

The very first result of his decision was that he was punished by dismissed parliament. He was not elected and instead with 50 votes for and 48 against Andris Bērziņš was elected. He is the oldest president in Latvian history with 67 years. Numerous controversies were associated with him. First that he was a henchman of the oligarch Aivars Lembergs, second that he hacked money from EU Development funds and the last that he may have more children that he claims. When he left the parliament house as newly elected president he was met by angry crowd that supported Zatlers. Zatlers suddenly became so popular, because he fulfilled the Latvian people’s dream to punish the parliament they elected themselves. In his first months as president Andris Berzins has shown itself as conservative and neutral president. He said no to many presidential privileges, like private residence, escort with sirens and even presidential salary. The last should not be problem since he is the wealthiest senior citizen in Latvia.

 The election campaign

The referendum to dissolve the parliament was met with great support and 94% of voters voted for. So again in few months a new election campaign was issued. A reminder that the last parliament begun work only in November 2010. The main question was the next move by Valdis Zatlers. The ruling party Unity asked him to join them. But, instead Zatlers formed new party called Zatlers Reform Party. He wanted to make new wining party from scratch and get as many people as possible. The initial outcome was dubious,  all popular members of Latvian intellectual elite declined to join his party. So his party was formed from amateurs and ex members from other parties.

The main slogan of the election campaign was to finally crush the so-called oligarch parties. The three main known oligarchs Ainārs Šlesers, Andris Šķēle and Aivars Lembergs were the main targets. In one way Zatlers really succeeded to crush them. Andris Šķēle  dissolved his Peoples Party that had to pay million lats to state for breaking election funding limits. The same happened with Ainārs Šlesers, who took part in elections, but failed to surpass 5% barrier. He also put the end to his Latvian First Party/Latvian Way, that he had just renamed as Šlesers Reform Party to tackle Zatlers. In meanwhile Aivars Lembergs Green Farmers Union made it to new Saeima but with only 13 seats and remain in opposition.

Two main gainers from Zatlers Decree Nr. 2 were two opposite parties that each gained more prominence in the new elections. The pro-Russian party union The Harmony Center nearly won the elections of the 1o. Saeima, but failed to enter the parliament. By the years the Harmony Center has been the main supporter of Latvian Russian speaking population. However, also it has tried to gather enough Latvian support. Latvians who support Harmony Center are mostly nostalgic about Soviet times and has deep connection with Russian culture. Others, are moved by the social democratic ideology of the party. The Harmony Center was ready to win the emergency elections and finally to enter the government.

The opposite force against leftist Russian force financed by Moscow was the National Alliance, a force formed from two conservative parties For Fatherland and Freedom/LNNK and All for Latvia!. The main ideology of this party was to defend Latvian rights in Latvia and preserve the Latvian language.  In November 2010, they were excluded from the government now because of the growing support for nationalist ideas they also hoped to enter the government.

The election outcome and troubled government formation

The emergency elections took place in 16. September. As many expected or feared the Harmony Center won by 26%. Zatlers Reform Party came second, Unity third and National Union fourth. The Green Farmers were the last to score above 5% barrier.

By the tradition the wining party should form the new government coalition. But the scored majority of the Harmony Center was not so great to make free moves so they had to relay on support from Latvian parties. And the movement to keep Harmony Center into opposition was stronger than ever. The leader of Harmony Center Nils Ušakovs made many concessions, first he recognized the occupation of Latvia at NATO meeting before the election night. The party that for years was denying that Latvia was occupied in 1940, by Soviet Union no came out with slogan: “There was an occupation, but there are no occupants!”, and asked to include this phrase in new governmental declaration. This phrase actually means that thousands of Soviet immigrants and occupation force members who still live in Latvia are not accountable for the actions of the Soviet Union and are legalized to live her further without worry. Such position made a lot of opposition against Harmony Center to taken in government.

 However, Valdis Zatlers threw a rock in to the pound, when he issued that Harmony Center must be taken in government. He made this decision in middle of the night, and angered people even more when he said this decision can only be changed with use of tanks. The analogy with 17, June 1940, when Soviet tanks rolled into Riga was bad for Zatlers and suddenly the peoples hero who dismissed the parliament became the national traitor in the eyes of many.

Two other contestants for the government the Unity and National Alliance allied against Zatlers, and forced him to make government without Harmony Center. In the end Valdis Dombrovskis kept his prime minister seat and the Latvian right-wing government was formed. Zatlers however got double shot in the feet in the very first day of the parliament session. He was again turned down by the parliament when his bid to take parliament speaker seat failed. Solvita Āboltiņa kept her parliament speaker seat. If that was not enough, six deputies from Zatlers party fraction left his party putting the coalition to a danger. Zatlers was speaking about traitors and worms, but Dombrovskis arranged deal with the six independent deputies to support the government.

The start of the national confrontation

The decision not to take Harmony Center into government started a large stir within the Russian population. The leader of the party Jānis Urbanovičs again threatened to use a “non – parliamentary activities” to enter the government. Russians hold a 28% of the population along with other minorities that mostly speak Russian. Why the Harmony Center was not taken into government? The very first answer that the Harmony Center have large disagreements with many Latvian parties and their ideology is against the interests of the Latvian state. They were against many economical policies, they wanted to cancel the deal with International Monetary Fund and wanted more cooperation with Russia. In national issues they wanted more rights for Russian language and they always questioned the historical issues of Latvia. If that was not enough they have signed a cooperation agreement with Vladimir Putin party United Russia and China Communist Party. Many sources state that the party is financed by the Kremlin.

 These events made Russian national radicals to organize a referendum for Russian language as the second official language.  The leader of this movement is the member of Russian neobolshevik  party Vladimir Linderman who was in past accused of terrorist activities and was deported from Russia. The idea of the referendum first came out in spring, when Linderman issued the petition for the referendum as the answer to National Alliance  petition signing to give lessons only in Latvian in schools. The National Alliance was intending to put the end to state funded Russian schools that still work in Latvia. That could be good move to end self-imposed school segregation in Latvia. While many Russians came to study in Latvian schools, many stays in Russian school and most probably finish them with bad Latvian language skills.  The petition failed as they failed to gather the required number of sing- ins for the referendum. Latvian population did not saw the issue important enough.

However, the Russian initiative was more successful since the question of Russian language as the official language was important for many nationalistic minded Russians. People who support this motion, are nostalgic for Soviet times, when Russian language was the main language and many were free from using Latvian. Many of them see Russia as their homeland. Others simply vote to protest against the existing state order that associate with Latvians and Europe. In so the referendum will take place in 18, February 2012. The prognosis of the outcome shows that the  motion will fail. To make such important change in the  constitution more than 60% of voters must vote yes. And this more than Harmony Center gathered in the elections. Russian speakers cannot gather more votes than the actually live in Latvia. And not all Russian speakers will vote for the motion. Meanwhile Latvian parties have asked all Latvians to take part in the referendum and vote no, to show Latvian unity.

The referendum issue sparks interesting question of what will be the future of the Harmony Center? At first Harmony Center was against the referendum, but actually it was secretly supporting it from the start. Then after staying in opposition the major of Riga and the leader of the party Nils Ušakovs singed for the referendum. To explained that he voted because of his conscience, but he was still in favor of one state language. Then other members of the Harmony Center also took part. In seems that Harmony Center took part in risky game to keep their voter sympathy. To enter the government they gave a lot of their demands and even recognized the occupation, but still remained in opposition. To rehabilitate themselves to Russian voters they again turned to national moves. Also it was important for Ušakovs to keep enough support to win in Riga Municipal elections, because the municipality has financial problems and their allies from Šlesers party have failed. But, by this move the Harmony Center has alienated the Latvian voters and made even better arguments for Latvian parties not include the Harmony Center into government.

Many liberals blame Latvian parties and Latvian nationalists for this situation. They say if the Harmony Center would be given a chance to take part into the parliament no referendum would not took place. Others blame National Alliance for their proposed referendum that provoked Russian radicals. But, in reality that is not the case. The petition would have happened even if Harmony Center would be in the government. That also would give good boost to gather necessary sing-ins. Also similar schemes happened in Ukraine and South Ossetia  where there no Latvian nationalists. The Linderman’s referendum is part of global politics of the Russian Federation to stir up Russians in the neighboring countries in the wake of the presidential elections.

More financial and economic troubles

At the end of the year the IMF mission in Latvia was finished. Latvia no more had to take more loans from IMF and organize the budget according to IMF demands. But, before it Latvia faced crisis in Air line and Bank sector. Latvian national Air Line Air Baltic nearly crushed, if had not be saved by the government and bank Latvijas Krājbanka went bankrupt because of forgery made by its owners.

Air Baltic was suffering from spending deficit already in 2011. At that time it was led by German businessman Bertold Flik  who got himself involved in corruption and conflicts with the government. After Minister of the economy Artis Kampars warned about possible bankruptcy of the airline, Fliks in fear from the anti-corruption service moved to Germany. Then later the government removed Fliks from office. After bank crush in Lithuania, whole Air Baltic was nationalized because Lithuanian Snoras bank had large share of Air Baltic stock actions.

Next big hit was in November, when the Lithuanian government nationalized the Snoras bank owned by Russian banker Vladimir Antonov. He and his associates was accused of looting the bank resources. The Snoras bank was in control of Latvian based Latvijas Krājbanka. Few days after the events in Lithuania the Latvian Financial Capital Trade commission came to conclusion that also  about 100 millions of Lats had been looted from Latvijas Krājbanka also. So also the Latvijas Krājbanka went bankrupt. Many thousand people had problems with their bank accounts and pensions. In rural areas where there was only one Latvijas Krājbanka ATM problems were severe.

In December, a rumors on social circles, Twitter, Draugiem Lv, spread out that also Swedish Swedbank has problems. That lead to bank customer panic and in one night more than 20 million of Lats were taken out by panicked customers. Soon it was clear that the rumors were spread out in purpose. No actual Swedbank problems were known and this was an intended scheme to make loss for Swedbank and Latvian economy. The Latvian security police has stated that the perpetrators may come from foreign country.

These were the main political and economical events in Latvia in 2011. It was the time of new political crisis, ethnic division and financial problems.  The next year will no be no less intense. As the astrologers say the 2011 and 2012 is the time of increased solar activity so its time of worldwide changes. Plus 2012. will be the year of the dragoon. Last time when I wrote report about Latvia in 2010, I expressed hope that this year would be much peaceful and wiser than the last. It however turned that the year 2011 was the year of troubles for whole the world. Next year will be the year of changes and I wish the Latvian people to be strong enough to survive these changes.