How Latvia Came Through the Financial Crisis

October 5th, 2011   Seminars | The Baltic States

Professor Anders Åslund spoke about how the Baltic countries managed to curb the financial crisis.

Professor Åslund is one of the world’s leading experts on the former Soviet republics and has been working as an economic advisor to the governments in the Baltic states, Russia, Ukraine, Kyrgyzstan and other countries. Currently working at the Peterson Institute for International Economics in Washington DC, professor Åslund has written numerous books, most recently “How Latvia came through the Financial Crisis,” together with the Latvian Prime Minister Valdis Dombrovskis.

 “In an economic crisis, you have to cut down on bureaucracy. In Latvia, it was cut down by 30 percent and the wages in the public sector was reduced on average by 26 percent”, according to ÅslundAnders Åslund argues that such decisions can be popular among the voters: “Latvia eliminated half of the country’s Government authorities.”

The most popular decision, according to Åslund, was to abolish the system of for example state secretaries working as board members in public companies, an occupation that used to double their salaries.

Privatization, is it a medication that can take a country out of a financial crisis?

No, says Åslund. Privatization is a long-term measure. Privatization takes time and during an economic crisis the price for the privatized companies will be minimal.

The public sector was reduced during the financial crises in Latvia. With its two million inhabitants, the country had 59 hospitals before the crisis, a number that has now been reduced by 50 percent, while primary health care has been increased. The school system was also slimmed in the sense that the number of schools was reduced as well as the number of teachers (the teacher ratio in Latvia was high in an international comparison).

“We should pay for education and not for real estate”, said Åslund.

How did Latvia manage to implement all measures without major protests and dismay by the voters?

“The Latvian Prime Minister Valdis Dombrovskis presented two options: one bad and one worse. They decided to implement the bad. “

Professor Åslund argues that politicians have to declare that the misery of the people is the misery also of their leaders. In addition, politicians have to set good examples during an economic crisis.

Text: Elisabeth Precht

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