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Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 9,671 8,406 7,500 94
         
GNI per capita
 US $ 4,070 3,480 3,230 79
Ranking is given out of 208 nations - (data from the World Bank)

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Update No: 315 - (29/03/07)

Sometimes a whole political landscape can be lit up by one dramatic event, the downfall of Nixon, the Enron affair, the arrest of Khodorkovsky. President Vaira Vike-Freiberga, who lived most of her life in the US, scents something of the sort may be in the wind in Latvia, as she ends her second and last term. She seems determined to do something about it.

Bribery allegations against Lembergs spark rumours of widespread graft in parliament
The integrity of Latvia's parliament, elected last October, was thrown into doubt after rumours spread that as many as 31 deputies may have been on the payroll of Ventspils Mayor, Aivars Lembergs, a very big figure indeed in Latvia, who was arrested on March 14th on charges of bribery, money laundering and tax evasion. The allegations, stemming from records that were seized by police during searches of Lembergs' home and offices, are so serious that they have thrown the very future of the 9th Saeima (parliament) into doubt.

It is unclear whether the 31 deputies are all part of the current 100-seat parliament or include members of previous legislatures. 

Lembergs, whose Greens and Farmers Union finished second in the election, was initially detained for questioning, but a court ruled late on March 14th that he should remain in police custody. Prosecutors successfully argued that the mayor could influence the ongoing investigation into corruption in Ventspils business and politics. 

The arrest, punctuated by images of Lembergs in handcuffs, capped off the most dramatic week in Latvian politics since the paedophile scandal in 2000, and possibly since independence. Earlier in the week President Vaira Vike-Freiberga used her constitutional right (Article 72) not to approve amendments to national security laws and instead hold a referendum on the changes, an unprecedented move for the head of state. 

The prosecutor's office has so far refused to comment on the alleged list of names, but opposition MPs and influential politicians are calling for immediate publication prior to the start of the presidential race, which will take place this summer. 

According to Article 48 of the Constitution, the president may propose dissolving Parliament, a decision that would have to be supported by at least 50 per cent of the vote in a national referendum. However, should the president lose the referendum, she would have to resign her position.

It is unlikely that Vike-Freiberga, whose term in office expires in July, is willing to take such a legacy-altering risk in the waning months of her presidency. 

Regardless, both the confrontation between the head of state and the government over the national security laws and the widespread crackdown on high-level corruption are testing the mettle of Latvia's constitution, law enforcement agencies and court system. 

Latvia versus the Yanks - Vike-Freiberga and Soros?
As Dr Johnson said: "Patriotism is the last refuge of a scoundrel." Is this true with Lembergs, who has been under investigation since last July for a separate batch of money-related crimes, denies all charges against him and says that the bribes to MPs - dubbed "stipends" in the Latvian media - are a fiction. 

"What stipends?" he countered when asked by journalists on March 19 in a Kuldiga court, where Lembergs is under litigation in a minor abuse of power case. "This is being done in order to dissolve the Saeima." As Lembergs explained, the chief forces behind this push to disband parliament are Vike-Freiberga and political structures backed by U.S. billionaire George Soros. 

"What's taking place is reminiscent of American PR methods. A good question - why does the head of state [Vike-Freiberga] need this?" he said. 

Lembergs' arrest was handed down by the Riga Centre District Court. It was expected that the Riga Regional Court would hear an appeal later in the week. Lembergs is now residing alone in a two-person cell in Matisa Prison. Shades of Khodorkovsky.

The arrest is being interpreted in Latvian media as a wider campaign against the country's so-called oligarchs, which primarily refers to Lembergs, former Prime Minister Andris Skele and current Transport Minister Ainars Slesers. 

The leading daily Diena wrote in a front-page article that the noose has tightened around Skele, whose name is continually brought up in connection to the ongoing investigation into fraud in a digital TV project. 

Slesers, meanwhile, has found himself embroiled in a vote-buying scandal in the seaside town of Jurmala. 

Though the term oligarch has been loosely defined and even dismissed, it recently gained credibility when Vike-Freiberga used it in her March 10 press conference, during which she castigated the government and Parliament for supporting amendments to the national security law. 

She said "oligarchic interests" supporting the amendments were jeopardizing the integrity of Latvia's national security system and throwing doubt on the country's reliability as a NATO ally. 

Lembergs has been mayor of Ventspils since 1988, and Vike-Freiberga president since 1999. Historically, the two have managed a tenuous relationship, with the head of state reluctant to publicly criticize the mayor, but in the run-up to last year's election the president made no qualms about pointing out charges made against Lembergs and how this has tarnished his credibility as a leader. Lembergs had been the Greens and Farmers candidate for prime minister. 

For his part, Lembergs has become increasingly critical of the president, and now mentions her name in the same sentence as George Soros with increasing frequency. Soros, for Lembergs, has become the focal point of supposed nefarious external influence on Latvia's domestic affairs, as has the government of the United States. 

The Neatkariga Rita Avize paper, which is owned by Preses Nams and is part of Lembergs' business empire, is on a daily basis filled with numerous attacks on all three. 

The March 20 issue contains a front-page headline proclaiming "the U.S. Embassy wants its Latvian government." The article goes on to claim that U.S. Embassy officials are conducting "intensive consultations" with political forces about a new coalition government in Latvia. 

Unofficially, there are reports that the United States is indeed displeased with the amendments to the national security laws, as the changes, if implemented, would essentially strengthen parliamentary control over law enforcement structures and widen the sphere of persons with access to vital national security data and secrets. 

As Latvia is a member of NATO and neighbour to Russia, leaks in the country's national security arena could do substantial harm to the military alliance

The last stand of the Latvian oligarchs?
The Latvian president's decision to freeze changes to the security services is the first shot in what could be the last stand of the country's oligarchs, experts agreed. "The oligarchs are fighting for their survival. Before Latvia joined the EU in 2004, the security and justice systems were greatly strengthened - now they're a real threat to the oligarchs," said Lolita Cigane, public policy researcher at the NGO Providus. Recently Vike-Freiberga invoked her constitutional right to freeze the promulgation of two legal amendments greatly increasing government control over the security services. 

It was the first time in her eight-year rule that Vike-Freiberga had invoked this right, and the first time she had drawn a direct link between the amendments and Latvia's so-called oligarchs. The amendments "open the door to very serious political manipulation... and, ultimately, influenced by the so-called oligarchs, which would be very dangerous," she told journalists in a speech of unprecedented severity. "I am ready to make my fears known - namely, that there could be inappropriate interference in those of our investigations which could touch either certain political groups, or the people who support them financially and stand behind them," she added. 

The amendments, passed by government as emergency legislation during parliament's Christmas break, greatly increase governmental control over the security services, allowing ministers and their delegates to launch investigations into security operations. Ministers said they were needed to improve security coordination in times of danger. Vike-Freiberga vetoed the amendments on February 9, but parliament forced the changes through on March 1. Many local commentators believe that the changes were provoked by politicians' desire to tame a security apparatus which has already launched a series of investigations into the "oligarchs". 

"The anti-corruption bureau and the prosecutor-general are a threat to one or all of the oligarchs, who are frantically trying to get access to information on ongoing investigations," said Nils Muiznieks, head of political science at the University of Latvia. Three men are most often referred to as Latvia's "oligarchs:" the mayor of the oil port of Ventspils, Aivars Lembergs, former Prime Minister Andris Skele, and Transport Minister Ainars Slesers. "Lembergs is Latvia's only true oligarch in the Russian sense, since he has political, economic and media power. Skele and Slesers are very weak in terms of media power," Muiznieks said. 

Each is closely linked with one of the parties in Latvia's four- party ruling coalition, and each has been accused in the past of influencing political processes for personal gain. Last March Slesers and Skele were implicated in a vote-buying scandal after a leading TV journalist published recorded phone messages which allegedly showed them coordinating the transaction. And in July prosecutors accused Lembergs of bribery, money- laundering and exceeding his powers. "The noose is tightest around Lembergs' neck. Skele and Slesers don't mind seeing him squirm, but they don't want to see him behind bars because it could be them next," Muiznieks said. 

Last Monday, government figures hit back strongly at the president's allegations. Prime Minister Aigars Kalvitis flatly denied any oligarch influence on his government, while Lembergs accused the president of attempting to "destabilise" the country. She "has not read the amendments" and is "hand in hand with the Soros political association," Lembergs told the Leta news agency. The international pro-democracy fund established by billionaire George Soros is the sponsor of both Providus and anti-corruption watchdog Delna, which have often criticized Lembergs. 

According to the constitution, if one-tenth of Latvia's 1.49 million voters sign a petition within the next two months, the amendments will become subject to a national referendum. And on Monday electoral officials told Leta they will meet this week to discuss launching the petition process - potentially leaving the fate of the amendments and the oligarchs in voters' hands. "There is enough disillusionment with the political elite in Latvia, but it will all depend on how society can mobilize. That will depend on the media and on civil groups," Cigane said. 

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PROPERTY

Economists warn of slow-down in Latvia's property boom too

The property boom which has gripped Latvia since the small Baltic state joined the EU in 2004 is unsustainable and likely to slow in the near future, experts warned on February 28th. "The current growth rates in prices for Soviet-era apartments are not sustainable even in the short term, and prices in this segment are likely to stabilize during 2007," said Kristine Vitola, a senior economic analyst at the Bank of Latvia. "New-built properties will continue to go up in price under the influence of inflation, however," she added, Deutsche-Presse-Agentur (dpa) reported. 
Latvia's property market has seen meteoric growth since EU accession in May 2004. The former Soviet state has one of the EU's lowest levels of living space per person, creating an apparently inexhaustible demand for more housing stock. 
In the last seven months alone, property prices have risen 32 per cent, and could hit a year-on-year growth rate of 58 per cent by June, Vitola said. The expectation of further rapid growth to come has fuelled the housing market, experts agree. "Recent price rises have been based on a very large degree of optimism concerning future incomes among builders and buyers ... But if they think prices will keep rising long-term, they're wrong," said Martins Kazaks, senior economist at Hansabank Latvia. Despite double-figure GDP growth, Latvia remains one of the EU's poorest countries. Over the last seven months, wages are reckoned to have grown by around 13 percent - an exhilarating pace, but well short of the rise in property prices. "In 2001, a worker could buy one square metre of living space in Riga for one average net monthly salary. In the third quarter of 2006, the same square metre would cost three monthly salaries," Vitola pointed out. And the market's further expansion is being largely driven by optimism that the meteoric price rises of the past will continue, experts believe - leaving the market vulnerable to sudden shocks. "This is the classic form of an economic bubble. There's a Chinese curse which says, 'May you live in interesting times,' and 2007 promises to be very interesting," said Andris Strazds, lecturer in economics at the Stockholm School of Economics in Riga. 
The predictions come at a time when concerns over Latvia's headlong economic development are increasing. Experts predict that GDP growth in 2006 will approach 12 per cent, while inflation is expected to top six percent - both among the EU's highest. And a current-account deficit of over 20 per cent has set alarm bells ringing, with senior economists warning that Latvia's economy is now more precariously balanced than Asian economies before the great crashes of the mid-1990s. Latvia's Baltic neighbours, Estonia and Lithuania, have also seen property surges and economic booms. However, their property markets began to slow down gradually in late 2006, with Soviet-era properties leading the stabilisation.

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