In the USSR, Latvia, Lithuania and Estonia always stood apart. The Baltic republics boasted a higher standard of living than other parts of the country, and produced goods that set the standard for quality for the entire nation. But their citizens never sought to fully integrate into the country’s multi-ethnic community. Rather they sought independence, first in their every day lives, and then as nations.
This quest for independence was given a powerful boost by the liberal reforms of the perestroika era. Lithuania was the first among the Baltic republics to proclaim its sovereignty in the spring of 1990, replacing the Soviet Constitution with its own, adopted back in 1938. Latvia followed suit. The Soviet government responded with an economic blockade.
Authorities in Lithuania were forced to raise consumer prices, triggering mass unrest. Trade union leaders called for an anti-parliament protest in the capital, Vilnius. In the early hours of January 14, 1991, Soviet tanks entered the city center. Clashes with protesters outside the television headquarters killed 15 and left another 600 wounded. It remains unclear to this day who fired first.
Tensions soon spilled over into the neighboring Latvia. Local commandoes, who reported to the Soviet Interior Ministry at the time, began disarming police units in Riga on January 20. They came under fire from the headquarters of Latvia’s Interior Ministry, and responded with an assault on the building. There were casualties on both sides, with many bystanders caught in the crossfire.
The Baltic republics finally regained their independence in September 1991, following a failed coup attempt in Moscow.
Latvia embarked on a program of sweeping economic reforms, many of them controversial. It began by shutting down large plants, such as the electronics giant VEF and the automaker RAF, leaving their predominantly Russian staffs out of work. The country also had to drastically downsize its fish processing facilities, owing to the loss of the Soviet food market. Latvian authorities singled out the banking sector and cargo transit services as the engines behind their economic reforms. In early post-Soviet years, transit revenues generated as much as 25% of Latvia’s gross domestic product.
The new policy began to yield results in the mid-1990s when Latvia’s GDP resurged and the country saw an influx of Western investment. In 2008, the average salary reached 479 lati, or 8,179 euros. Latvia became known as a “Baltic tiger.” But its prosperity proved short-lived.
The emerging economy suffered a serious blow when Russia diverted its petroleum exports away from Latvian ports to new terminals in the Leningrad Region. And the global economic downturn brought it to the brink of catastrophe, leading to a huge budget deficit and price hikes.
In the twenty years since the fall of the Soviet Union, Latvia’s GDP has reached just 90% of the 1990 level. The average wage dropped 11% in 2010, as compared with 2008. The government’s decision to cut social spending and to raise taxes led to price spikes on all categories of goods. Gasoline prices, for instance, reached 1.2 euro per liter in January, 2011.
Latvian Prime Minister Valdis Dombrovskis is currently contemplating further budget cuts: “We’ve discussed possible amounts with international creditors and mapped out an action plan. The amounts set may be reduced in the course of further discussions.”
Latvia’s budget will be slashed by an additional 71 million euros. The biggest cuts are planned for social spending, notably in the health sector, where costs will be reduced by commercializing most hospital services.
Joblessness is one of Latvia’s major problems at the moment. According to the country’s National Employment Agency, the unemployment rate hit 14.3% last December, with 162,463 people officially registered as unemployed. This has led to a massive outflow of workforce. Ireland alone has admitted as many as 45,000 Latvian labor migrants.
According to official statistics, Latvia’s population has shrunk by 400,000 since the republic proclaimed its independence from the Soviet Union in 1991.
The economic crisis has also caused Latvia’s property prices to fall. By December 2010, the average price of housing in Riga fell to 579 euros per square meter.
Sensible Latvian politicians now see the restoration of neighborly relations with Russia as a foreign policy priority for their country. An important step in that direction was made by President Valdis Zatlers last December when he came to Moscow for an official visit, the Latvian head of state’s first since Latvia regained its sovereignty in the 1990s. While in Moscow, Zatlers met with his Russian counterpart, Dmitry Medvedev, and invited him to visit Riga.
“They invited me with an open heart,” the Russian president said. “I’ve never been to Riga or anywhere else in Latvia, and I’m curious to go. There are things to discuss and things to see out there.”
Unfortunately, any steps, however cautious, toward normalizing relations with Russia cause an uproar in Latvia’s ruling right-wing Unity coalition.
“It is highly unlikely that Latvian President Zatlers will remain in his post for another four years,” says Dzintars Zakis, chairman of the Unity parliamentary faction.
Latvia’s next presidential election is set for the summer of 2011. By that time, it should become clear how the nation will approach relations with Russia.
Lithuania’s economy has also been battered by the global economic downturn. Its GDP, according to The Economist, has dropped by a record 3.5%.
The Lithuanian government claims the economy is picking up, but the numbers suggest otherwise. The unemployment rate hit 14% by the end of 2010. The average wage fell by 3.2%, as compared with the last few years. The nation’s foreign debt keeps growing. It stood at 17.37 billion litas (about $7 billion) in 2008, but doubled in 2010, and is expected to reach $16.6 billion this year.
Vilnius was planning to join the eurozone in 2011, but its accession has been postponed till 2014 owing to the unfavorable macroeconomic situation in the country.
As in neighboring Latvia, the economic crisis in Lithuania knocked the legs out of real estate prices. The current price is 1,100 euros per square meter in Vilnius and 870 euros in Kaunas.
According to the National Statistics Department, the country’s population shrank to 3.261 million by the end of 2010, down from 3.335 in 2009.
Lithuania’s economic relations with Russia soured in 2010 when the Lithuanian government considered dividing the national gas corporation Lietuvos Dujos into two separate companies (a trader and a pipeline operator) by March 2012. The idea originated in the Third EU Energy Package, aimed at stimulating competition on European energy markets.
Russia’s Gazprom, which owns roughly 37% of Lietuvos Dujos, has threatened to impose sanctions on Lithuania if it goes ahead without consultations. Already the Russian energy giant has refused to give Lithuania a discount on the contract price of natural gas, whereas Estonia and Latvia have each received a 15% price reduction.
Lithuania’s government tries to distract the public from its current economic woes by revisiting the tragic events of January, 1991 and by suggesting that Russia should be sued for damages.
The “Baltic tigers” can hardly expect any massive economic aid from the EU this year, with Brussels already struggling to bail out Ireland, Greece and Spain. So, perhaps, it is time the former Soviet states restored economic ties with Russia.
The views expressed in this article are the author’s and do not necessarily represent those of RIA Novosti.
*Ivan Savelyev is an analyst with the Independent CIS Observer.