All About Latvia

A remedy for the hangover

Jan 13

AleksEconomy, The Godmanis government, Uncategorized 3 Comments

RĪGA – The Nordea macroeconomic review (available in PDF)in September put it rightly: “Latvia: the Party is over.” After several years of robust growth, Latvian economy is now in a slump. The economy is expected to shrink by as much as 8 percent this year, resulting in massive unemployment the likes of which we probably haven’t seen since the early 1990s.

Riding the populist wave a head of the local elections this summer, the minister of transport Ainars Šlesers – an apparent candidate for the mayoral seat in Rīga – yesterday proposed a three-year moratorium on allowing banks to go after defaulted borrowers. That means that banks will not be able to use all legal means necessary to get back the money they lend to consumers.

“There has come a time to call to answer the irresponsible behavior which banks have behaved in the recent years,” Šlesers told LNT.

It is an ironic statement coming from a man who appears to be above taking responsibility for his actions. Blaming banks for irresponsible borrowers is as foolish as blaming the sale of alcohol for the rampant alcoholism. The one and only Soviet President Mikhail Gorbachev fought alcoholism exactly the same way Šlesers proposes to fight the severe indebtedness: absolving people from their responsibility for their decisions. When will we learn to make the right choices?

The problem is people who have not been used to credit were exposed to vast possibilities. They took out loans to go on holidays. I heard stories of people taking a cruise to the Mediterranean on credit, buying the latest and greatest in clothes, automobiles, houses on credit. People have been living beyond their means and clearly have to learn the tough lessons of the crisis. It’s something that people teach their kids in the West.

That is not to say that the government should stand idle as voters struggle to make ends meet in an economy where unemployment is projected to reach 11 percent in 2010. Changes in bank regulation certainly are needed and will be coming our way this year. And it seems to me requiring people to take a class on financial management paid for by the bank before they’re granted a loan would educate the public how to manage their finances, and how to live a peaceful life no matter what might come your way. Even if it’s another economic turmoil.