The most significant challenges for Latvia in the coming years will be both external and internal security, as well as the economic situation; during the pre-election period, politicians must be responsible for their promises so that they do not fuel already high inflation.
This is what the President of Latvia, Egils Levits, says in an interview with Dienas Bizness. The President believes that in an era of rapid technological development, significant investment in science and education is necessary, but the results will only be visible after several years. At present, we are living off the investments that were made 5 or 10 years ago.
If more had been invested in science and technology in the past, we would be in a much better situation today. Education and science are the areas where we must invest, while being aware that the results will only appear in 5 or 10 years' time.
What are the most significant challenges for Latvia for 2022-2025?
I see two main challenges for Latvia this year and for the next three years: security – both external and internal – and the economic situation. Undeniably, in the current complex situation, which is characterised by insecurity, economic prospects are difficult to predict.
Do you see any solutions for successfully overcoming these challenges? Russia's invasion of Ukraine has changed the international situation worldwide in both the security and economic spheres. Latvia cannot change the situation in the world, but it will impact the situation in our country.
As a result, new challenges arise in Latvia, and the logical question is how we will be able to cope with them. In the context of security, Latvia’s mainstay is its own investments in external security – the National Armed Forces, which since 2014 (when Russia implemented the annexation of Crimea and started the war in Donbas) have significantly improved their combat capabilities by increasing personnel and supplementing equipment in conjunction with professional training. Although Latvia’s allies acknowledge the high level of professionalism of the Latvian armed forces compared to other NATO member states, we must continue to invest in the armed forces in the future to increase their combat capabilities. Since Russia's invasion of Ukraine, NATO allies have significantly increased the number of troops stationed in Latvia, but we would like this contingent to be even larger. Latvia is participating in the development of a new NATO defence concept, which will be adopted on 30 June during the Madrid summit. During the Bucharest meeting, the leaders of the nine countries of NATO's eastern flank – Estonia, Latvia, Lithuania, Poland, the Czech Republic, Hungary, Slovakia, Romania and Bulgaria – concluded that we have common interests, namely, to strengthen this flank, which we will also represent in Madrid. The most powerful member of NATO – the USA – has an understanding of this necessity, as it seems that Russia's aggressive ideology is here for the long haul. One must orient oneself to the fact that there is an aggressive Russia nearby with an imperialist ideology, and it must be deterred from further aggression. Deterrence means being politically and militarily strong and simultaneously being prepared to use this power if necessary, and this must be made clear to Moscow as well – any kind of aggression against any NATO member state will end in Russia’s defeat.
Unfortunately, the other part of security – internal security – is a sphere where significant investments have not been made. Regrettably, the State Border Guard, the State Police, and the State Fire and Rescue Service have been neglected for a long time. Internal security must be brought up to the level of the National Armed Forces over the coming years. To achieve this, such a goal must also be reflected in the state budget. This will require funding for all internal security services, which are currently by no means at the same level as the National Armed Forces.
To have the money to invest in security, a strong economy is required!
The whole world has been hit by economic uncertainty because no one knows how the situation will develop. It is not only the global economy that is insecure, but also the economic situation in the European Union and the eurozone.
We must think about how to react to new short-term challenges – unprecedently high inflation, which grew very rapidly in a few months, and the economic slowdown (where one of the problems lies in global supply chains). Latvia is closely involved and cannot close its borders and live independently from the rest of the world.
We must think about what Latvia could do to be able to emerge from this situation with dry or as dry as possible feet. There are several directions in which the government is already working – targeted support for low-income residents who will be most painfully affected by the rise in energy (heating) costs. I consider this solution to be the best possible, because 'helicopter money' – distributing it to everyone – is not the best. Undeniably, targeted support requires complex management, but otherwise it does not reach its goal. The fact that it is necessary to create such a system of targeted support has been discussed previously – during the pandemic; unfortunately, its creation was delayed. This is unfinished homework that must be completed as quickly as possible. Support for everyone promotes inequality, and even more so if the European Commission and other experts acknowledge that Latvia's social benefit system is not one that reduces inequality but rather promotes it. The Minister of Welfare has already submitted their proposals (14 in total) to the government, and one of them is targeted support for households. Now the Cabinet of Ministers will have to decide how to proceed. I am sure that such a – targeted – support system will be accepted so that residents can count on it.
The government has learned from the Covid-19 crisis and will have established a system well in advance so that in the autumn, when heating prices have increased significantly, it will be able to act adequately and help those who need such assistance.
Is it even possible to curb inflation during the pre-election period?
Regarding inflation – one must be very careful, especially during the pre-election period. Remembering the witty saying 'How can one not promise!', one can end up in a situation where those promises are difficult to keep or can only be implemented by increasing inflation. In this position, the parties that hope to enter the next Saeima and form a government must have internal discipline. A frightening example is from the time after the 2018 Saeima elections, when, while a new government had not yet been formed, various laws were passed with various promises, which were then very difficult to keep. I hope that the parties that will be responsible will not make promises that will rapidly fuel inflation. Latvia is a eurozone country, and no government has precise instruments to reduce inflation; such tools belong to the European Central Bank. Inflation is a major challenge. The European Central Bank has given signals that it will raise the interest rate in July, which is an unprecedented measure in many recent years, thereby taking countermeasures against inflation.
But how is it possible that in the eurozone country of Germany inflation is 8.9%, while in the eurozone country of Latvia it is 16.4%?
The responsible authorities must monitor the situation and analyse which measures would most effectively curb inflation and which are most appropriate for us. Latvia is currently in a dangerous – pre-election – period when there is a tendency to promise something. The Chair of the Fiscal Discipline Council, Inna Šteinbuka, has pointed out a series of problems and their possible solutions in her interview. The government must very carefully look at and evaluate possible solutions.
To provide any support measures, the government will not have the money in the budget, and the only solution is an additional loan!
That is exactly why I emphasize that in the current situation, the responsibility and discipline of politicians are extremely important and necessary, especially from those parties that have the prospects of overcoming the 5% barrier in the next Saeima elections and that with high probability could be part of the government-forming coalition. If politicians promise recklessly before the elections, then they will have to implement it themselves afterwards. I hope there will be responsible action from the politicians, from the current as well as the potentially future government-forming coalition parties.
How to make politicians more far-sighted, thinking in the long term?
In Latvia, it is unfortunately a typical situation that only short-term solutions are on the agenda, which immediately promise or give a result, for example, calming the people with those same benefits, but the problems are not solved at their root by thinking long-term.
The problem of political culture in Latvia is not new, but the situation is slowly improving compared to the situation as it was 20, 10, or even five years ago. This is evidenced by the very fact that, for the first time in Latvia's history, the current government, with minor changes, will have served the entire cycle of this Saeima convocation. This shows increased maturity, even if not yet to the level that would be desirable. At the same time, long-term thinking must be promoted, which is still not developed as it should be. In other words, to invest today where the fruits will be in several – 5-10 – years, therefore, already during the time of another Saeima. In an era of rapid technological development, significant investment in science and education is necessary, well aware that the results will only appear in several years. At present, we are living off those investments that were made 5 or 10 years ago. If more had been invested in science and technology in the past, we would be in a much better situation today.
Education and science are the areas in which one must invest, while being aware that the results will come after years. It is also necessary to improve the state administration and its structure. We still have classical state administration, where one ministry is responsible for the whole sector, but in a modern society there are many cross-sectoral issues, for example, digitalisation, for which no one is really responsible now. Currently, the EU Green Deal is topical, but there is no one responsible for it in a complex way in Latvia; every ministry does something, but coordinating it is very difficult and slow. Therefore, my proposal is to supplement the government structure with state ministers, people with special assignments, as well as with a State Council where one could consult on sustainability issues, about which much is said but little is done. I first wrote about a State Council in 2005, but there is still no support for this idea among politicians. It is quite hopeless to submit a corresponding draft law in this Saeima, therefore it could be submitted to the new convocation of the Saeima, having first organised a conference about the State Council for the newly elected deputies.
What would be your wish for Latvian entrepreneurs?
Every crisis, if used well, is also a certain opportunity. Currently, there are great difficulties for our national economy and entrepreneurs. In a situation where one is in deep trouble, something is invented, and I wish for such productive imagination that leads to a quantitative leap in this uncertain situation. Even during the Covid-19 pandemic, there were companies that had a hard time and did not survive, but there were also companies that achieved growth.
Findings of the President of Latvia, Egils Levits, when addressing the Saeima:
* When choosing the Prime Minister for the next government, I will carefully evaluate whether the candidate offers a concrete, reasonable policy that makes Latvia safer and more resilient to crises.
* Latvia's energy self-sufficiency is also a security issue. At the moment, the government is working in alarm mode to replace Russian gas. That is correct. But time has been lost for an unforgivably long period by delaying the use of wind, solar, biomass, and other alternative resources in the country's energy supply. Therefore, a far-sighted decision to build our own liquefied gas terminal was not taken, even though there have been discussions about it.
* These previous decisions, or more precisely – the failure to make decisions – now make our energy crisis even more severe. Furthermore, it is unacceptable that wind park investors have to wander through bureaucratic labyrinths, fight administrative obstacles, and even go to court to be able to produce the energy we so desperately need.
* The current social support system is expensive and inefficient. This has also been acknowledged by international experts. It has not served to reduce inequality, which is among the highest in the European Union in Latvia. A targeted social support system is necessary during the energy crisis. However, at the same time, it is an urgent structural reform to reduce inequality in the long term. Such a system must start working as early as this autumn.
* Latvia has been lagging behind Lithuania and Estonia in its development for a long time. Over the years, this distance has been increasing. The figures show this: by purchasing power parity, Lithuania is in 15th place in the European Union, Estonia is in 17th place, and Latvia is in 23rd place, thus 5th from the end. These are structural reforms that have not been carried out.
* I can name the problems that hinder Latvia's development and cause us to lag behind the other Baltic states. And they are: administrative obstacles to the entry of investments, insufficient funding for research and science, which reduces export capacity, an inefficient retraining system for the workforce and a shortage of qualified labour, an underdeveloped housing policy that does not promote labour mobility, insufficient access to credit, and a tax system that does not promote economic development.
* Millions have been invested in the digitalisation of state administration. Information is stored in 180 different digitalised registers, but shared automated use of data does not take place. In order for two or more state institutions to exchange data or use each other's databases, it is almost necessary to make changes to the law. Still, in most cases, the data required for a municipal social service are processed manually. This must not continue.
* State digital governance must be transformed for the next government and the next Saeima so that it serves society – conveniently, effectively, and accessible to everyone. This sphere must be overseen by a politically responsible official at the Cabinet of Ministers level. Likewise, there must be a politically responsible official for Latvia's Green Deal and the relevant reforms in the national economy, as these are all inter-institutional and cross-sectoral issues.
* State administration must be flexible, and it must be able to react to tasks that need to be solved for the benefit of society at any given time, even if the task simultaneously affects several sectors or institutions.
* I will invite the next candidate for Prime Minister to provide a concrete, weighed, and extensively justified reform plan on how to prevent the stagnant lag of state administration. And with ordinary, primitive, populist proposals, you had better not come to me at all!