Nations in Transit 2017. Latvia

There were no major political, economic or social shifts in Latvia in 2016, and the country remains a consolidated democracy. The democratic system has not been challenged, and no noteworthy political player has proposed major reforms. The idea of direct presidential elections that were on the agenda in early 2015 are no longer discussed after failing to find support among most of the parties in the parliament. The success of populists in other Western democracies has provoked fears of the phenomenon in Latvia, but what populism there is in the country has not widely expressed itself during the year, for example in the adoption of the national budget in November or towards ethnic minorities in the country.

While there were no elections in 2016, political parties already started to prepare for municipal elections in June 2017. In October, the Unity party became the first political party to be sanctioned for overspending on the national elections in 2015, leading to a stop of the party’s financing from the national budget. This continued a streak of internal problems that the once-powerful former ruling party has faced since a dispute between its previous leader, Solvita Āboltiņa, and former prime minister Laimdota Straujuma at the end of 2015. The result was a government reshuffle in which Unity lost its dominance and the Union of Greens and Farmers took over the prime minister’s post, with Māris Kučinskis becoming the new head of the government on February 11, 2016. Although Unity retained several posts in the new government, including that of the minister of foreign affairs, the debacle forced the party to go through a public debate about the selection of its new leader in the spring of 2016.

Other notable political challenges during 2016 were related to the heart problems of President Raimonds Vējonis and his cardiac operation in the spring, which led to the speaker of the parliament performing his duties for two months Also early in the year, newly elected prime minister Kučinskis fired Minister of Healthcare Guntis Belēvičs, a millionaire and member of the same party alliance, over abuse of office for skipping the mandatory waiting list in a public facility and receiving medical treatment.

Latvia continues to face recurring problems with corruption, tax evasion, and tax fraud. These activities, together with overly lengthy court proceedings and remaining gaps and inefficiencies in legislation that are prone to abuse, remain the greatest challenges to good governance and greater trust in public institutions. The most prominent example of the latter was a scandal that broke out around suspicious numbers in income declarations and property machinations in the State Revenue Service. The underlying problem is further exacerbated by the ongoing internal challenges in the Corruption Prevention and Combating Bureau of Latvia (KNAB), which is in the midst of a multi-year leadership crisis.

Latvia is an active member of the European Union (EU) and North Atlantic Treaty Organization (NATO), which the majority of the country’s population sees as guaranteeing security and an environment for economic development. Four international events were noteworthy for Latvia’s politics in 2016. First, on July 1 Latvia became the 35th member of the Organization for Economic Cooperation and Development (OECD), thus completing all of its foreign policy objectives when it comes to membership in core international organizations. Second, at the July 2016 NATO Summit in Warsaw, the organization decided to increase its multinational presence in the Baltics, including the deployment of NATO forces to Latvia beginning in 2017. Additionally, the Brexit referendum in the United Kingdom and the election of Donald Trump as president of the United States sent signs of worry to Latvia’s political elite and the society at large. The latter was regarded as especially troubling due to Trump’s contradictory statements on U.S. commitment to NATO. At the same time, the European refugee and migrant crisis—which was a hot topic in 2015— gradually faded from the domestic agenda in 2016.

Latvia’s economic development has been stable and positive, though slower than projected largely due to delays in the absorption of EU funds and the effects of economic sanctions on Russia. Latvia’s GDP grew by 2 percent in 20161 and the registered unemployment rate was 7.9 percent in 2016; growth is projected at 3.5 percent for 2017. Investments and economic growth in Latvia still largely depend on EU funds. Although the absorption of financing available for 2014—2020 is currently insufficient, the absorption rate for the 2007—2013 period has been 100 percent. Large discrepancies in income levels can still be observed between big cities (especially Riga) and the regions (especially in the east). Latvia still follows low budget deficit policies, with a 0.9 percent deficit in 2016 and 1.1 percent deficit in 2017.2 The adopted 2017 budget provides for spending 1.7 percent of GDP on national defense, and the law requires it to reach the NATO-wide goal of 2 percent by 2018.

Nations in Transit Ratings and Averaged Scores are freely available here.

Published 19 July 2017

Author Andris Sprūds

Author Karlis Bukovskis