Part of illustration by Katrin Stenmark.

Features The Baltic Berlusconi Recovery takes place in silence

After a fall in GDP of 25 percent and two and a half years of hard budget slashing, Latvia’s economy is growing again. In this moment of hope, the country is suddenly thrown into political turmoil. Corruption has grown out of hand, and the Latvian president has decided that enough is enough.

Published in the printed edition of Baltic Worlds Pages 28-29, 2 2011
Published on balticworlds.com on June 30, 2011

Since last year, Latvia has quietly been graduating from its IMF program. After a fall in GDP of 25 percent and two and a half years of hard budget slashing, Latvia’s economy is growing again.

In this moment of hope, the country is suddenly thrown into political turmoil.

Corruption has grown out of hand, and the Latvian president has decided that enough is enough. On May  28, Valdis Zatlers dismissed the parliament and asked for new elections, accusing the MPs of representing special interests rather than the people.

After rule of law had been compromised in several votes, the last straw was a decision by Parliament to block an anti-corruption investigation against a wealthy and influential MP, a so-called oligarch. President Zatlers moved swiftly, almost shocking the nation, a few days before he was up for reelection by the very parliament he decided to dismiss.

The president’s decision has to be confirmed in a referendum (July 23), and so the distrusted MPs used this respite to get back at Zatlers. On June 2, he was voted out of office, and replaced by parliamentarian Andris Berzins, a wealthy former head of Latvia’s Unibanka, now SEB.

The president-elect, who will take over on July 8, is a member of the Greens and Farmers Union, a party alliance under the heavy influence of another oligarch, Aivars Lembergs. Behind the scenes, it is Lembergs who has been pulling the strings in Latvia’s power struggle lately. Prime Minister Valdis Dombrovskis has become number two, with limited maneuvering room. And this was the deepest reason for president Zatlers to move for new elections.

Aivars Lembergs is   the mayor of Ventspils, with a seemingly eternal smile on his face, and on the surface a modest man. His family is the richest in Latvia. He has been on trial since 2009, accused of bribery, money laundering, and tax evasion. He is said to be part of shady privatization schemes, secretly controlling oil-transit business and hiding away hundreds of millions of euros in offshore tax havens like Switzerland, Luxembourg, the Bahamas, and the Antilles.

But regardless of the accusations, Lembergs is one of the most popular politicians in Latvia.

Political scientist Nils Muiznieks at the University of Latvia: “The criminal cases against Lembergs have not borne any fruit and he is immune to the stigma of being under criminal investigation — voters don’t care. Within the coalition, he has the power to block appointments he does not like”.

Valts Kalnins, also a political scientist and senior researcher at the leading think tank Providus, goes a step further. “Lembergs is the most influential single individual on the political scene. He holds the most power in the government. Dombrovskis may come in as number two”, says Kalnins.

Yet Aivars Lembergs is not even in the government. His formal power is limited to the well-kept port city Ventspils on the Baltic shore, where 88 percent of the local population approves of his work, according to a recent survey. Lembergs’s local party For Latvia and Ventspils is one of four groups in the Greens and Farmers Union (ZZS), junior partner in Prime Minister Dombrovskis’s government coalition. But Lembergs holds the upper hand in ZZS — and in the government.

Dombrovskis’s center-right alliance Unity won the election last October on an anti-corruption platform. But Unity’s cooperation with ZZS has limited the prime minister. “The most direct impact is the inability to fight corruption”, says Valts Kalnins.

Lolita Cigane is Unity’s most profiled anti-corruption parliamentarian and a former colleague of Kalnins. She confirms what the critics are saying. “Unity and ZZS have had divergent voting patterns in such crucial decisions as the election of the new ombudsman, the election of a High Court judge, the criminalization of illegal political party financing, and other decisions.”

On these occasions the coalition partner ZZS has voted with the opposition, making it difficult for Unity to fulfill the election promises, admits Lolita Cigane.

Latvian unemployment is still high, tax evasion is growing, and Latvians are emigrating and the population is thus shrinking. In recent polling, Dombrovskis’s party alliance was only in third place, and the prospect of new elections is worrying. The prime minister seems to lack the ability to manifest a clear vision beyond the IMF project of budget consolidation, and his so-called Unity alliance is almost as fragmented as the nation.

“It is our fragmentation that allows skillful guys like Lembergs to get their share, and at the moment his is bigger than it deserves to be”, notes Inese Voika, chairperson of Delna, the Latvian chapter of the anti-corruption organization Transparency International. “Society is in transition. One third values the rule of law and wants clean politics. One third supports Lembergs, the ‘survival Latvians’, and one third is either afraid of Russians or holds on to the feeling of being neglected as Russians.”

Lembergs’s popularity   comes with populist rhetoric. Lembergs labeled as blackmail the strict conditions of the IMF, the EU, Sweden, and others for 7.5 billion euros in loans in order to avoid state bankruptcy. Claiming that foreign lenders determined economic policy, social policy and health policy, Lembergs gave voice to a bitterness felt by many Latvians.

“We are being lied to”, he claimed in an interview I conducted with him.

“Talks are secret, people are not informed. This is similar to the Molotov-Ribbentrop pact in 1939 between Hitler and Stalin.”

Some foreigners laughed. The politicians accused shook their heads. But many poor people who were made poorer by draconian budget cuts nodded in agreement. In their vulnerable hour, Lembergs managed to strike a most impressive minor chord with them.

“Lembergs is an excellent demagogue. He is like Berlusconi. After TV debates I heard people reminding themselves: Come on, be careful — don’t buy this stuff!” says Valts Kalnins at Providus.

The comparison with Berlusconi does not stop at demagoguery. Lembergs is the richest and mightiest politician in his country. He is on trial for corruption, he is surrounded by women, he controls a large share of the media, and he is the financier behind his city’s victorious soccer team.

In Lembergs’s words, the moneylending to Latvia was neocolonialism, aimed at saving the Swedish banks in Latvia at the expense of the poor people, who took the brunt of the budget cuts.

“The state and the government serve the financial oligarchy, and the rich countries exploit the poor countries, first by brain drain and then by drafting aborigines from these colonial countries to do the dirtiest jobs and hard manual labor”, he said in my interview with him.

This self-proclaimed   paladin of the poor is Latvia’s foremost oligarch. His earnings have been officially declared to be from around 10 million euros in 2005 to 324,000 euros last year, in a country where the average salary has remained around 500 euros a month. Confronted with the accusations of massive fraud and economic crime, Lembergs brushes them aside as Silvio Berlusconi does: they have no basis in fact, and they are simply the work of sinister political enemies, orchestrated by George Soros, trying to destroy an innocent man.

“I have been acquitted in two trials, and I will pass the rest also”, he told me.

Inese Voika from Transparency points to the fact that many voters who support Lembergs’s party ZZS don’t see a link between the money he has amassed and the poverty haunting part of Latvian society: “They don’t have a realistic view. They praise the city of Ventspils, which looks nice, and say that Latvia would be like Ventspils under Lembergs’s rule.

“Another group of those voting for ZZS is more rational, but also cynical, because they know that Lembergs is corrupt. But since they believe in two kinds of politics, ‘stealing and sharing’ and ‘stealing and not sharing’, they support Lembergs because he also shares.”

Latvia’s version of Wikileaks, the investigative portal pietiek.com (pietiek = enough), has published a great number of documents from the trial against Lembergs. These have proved many years of suspicions to be true. Lembergs has provided Latvian politicians with generous “stipends”, buying their support in government and Parliament for decisions and laws that could benefit his business.

Business rivals have now taken the legal battle against Lembergs to the High Court in London. A suit has been filed against Lembergs to compensate for huge losses caused to the Latvian Shipping Company, when Lembergs and another oligarch, Andris Skele, agreed on the privatization of the company.

The press in Latvia has a huge task as watchdog. But since the Swedish Bonnier Group sold Latvia’s main daily Diena to undisclosed owners two years ago, the media landscape has become more fragmented. Of the three main dailies published in Latvian, Diena is now controlled by a business associate of the controversial politician and oligarch Ainars Slesers, Neatkariga Rita Avize is popularly known as “Lembergs Times”, and Latvijas Avize is owned by Lembergs’s opponents.

Inese Voika: “The media world was shaken by Bonnier’s sale of Diena. On the other hand, TV NET was bought by Schibsted, a Norwegian media conglomerate. The Web portal Delfi is also independent, and so are public radio and TV.”

The sale of Diena prompted several high-profile journalists to leave the paper. One result was the birth of a new quality magazine, IR. Another was the launching of the investigative Web portal pietiek.com. The latter has taken on everyone in the establishment and broken many stories on corruption.

KNAB, the anti-corruption bureau, was meant to be a beacon of light in Latvia’s murky political waters. But KNAB has also become a scene of conflict, with politicians vying for control. In the midst of internal turmoil though, the bureau managed to pull itself together in late May, organizing 42 raids, mostly at businesses connected to the country’s three powerful oligarchs. Despite Parliament’s refusal to allow one of the searches, criminal proceedings have been launched on charges of money-laundering, bribery, tax evasion, abuse of authority, and more.

Corruption has   worsened in Latvia with the economic crisis. Between 2008 and 2010, the country fell from 5.0 to 4.3 in Transparency’s Corruption Perceptions Index (where 10 is very clean and 0 is highly corrupt). Latvia is number 23 among EU members and trails even Turkey. At the top of the list is Denmark, with an index of 9.3 points.

Inese Voika explains: “When GDP drops, officials have fewer resources, and the temptation of abuse of office grows. Also, people don’t want to risk their income for the sake of principles, like fighting for a cleaner government.”

A recent report from the Stockholm School of Economics in Riga shows that the shadow economy in Latvia was 38.1 percent of GDP in 2010, an increase from the previous year.

Tax evasion is widespread and has increased with the economic crisis. Corruption is very difficult to root out in the health sector and among lower-level public officials. The police force and the border guards are vulnerable to temptations to engage in corrupt acts, even more so after having taken hard blows because of the budget cuts during the crisis. At risk are also local government officials, in particular those involved with land transactions and building permits.

The trial of Aivars Lembergs is seen as a test of the capacity of Latvia’s judiciary to fight corruption.

Inese Voika voices hope that the suit filed in London will boost chances for a conviction of Lembergs: “It may prove to be his last battle.”

Another battle is now being fought on political ground. With new parliament elections expected in September, Prime Minister Dombrovskis Unity alliance is disunited. An end to corrupt oligarch power would mean that Unity has to govern with the social-democratic party Harmony Center, dominated by ethnic Russians. A strong nationalist wing, led by foreign minister Girts Valdis Kristoviskis, fears that eventuality. “Right now it would paralyze government work”, says Kristovskis.

His opponents call for the most nationalist politicians to leave Unity, making cooperation with Harmony Center possible. “Taking Harmony Center into the government would have a stabilizing effect”, says defense minister Artis Pabriks.

According to the outgoing president’s adviser, Roberts Kilis, Harmony Center’s participation in government is even a question of Latvia’s security. “The ethnic divide is damaging and threatens the very basis of the state”, says Kilis.

Many Latvian politicians fear that Russian speakers in government would be a security risk. Roberts Kilis insists on the opposite view. “The risks are greater with Harmony Center outside than inside the government”, he says.” ≈

Arne Bengtsson