Latvia – 20 Years After its Independence

Following famous
words of my professor Anis Bajrektarevic that: “the
Atlantic Europe is a political power-house (with the two of three
European nuclear powers and two of five permanent members of the UN
Security Council, P-5), Central Europe is an economic power-house,
Russophone Europe is an energy power-house, Scandinavian Europe is
all of that a bit, and Eastern Europe is none of it.”, I wanted to
examine the standing of my own place of origin in the ‘new European
constellations’. What
happens to a country which suddenly is free to govern its own
territory and people? What is the biggest fear? Is it the inability
to satisfy its population or a threat from the former conqueror?
Should a country opt for the ‘shock therapy’ or experience
gradual changes? How to deal with the privatization of state-owned
institutions? The following lines objectively question how the
well-being of the East-European nation has changed in 20 years since
the collapse of the Soviet Union, and in the course of the country’s
integration into the EU. The authoress also answers whether a small
country like Latvia can actually preserve both its political and
economic sovereignty. On a bigger scale, the findings suggest that
the well-being in the Latvian SSR was better than it is today, while
others strongly disagree. Furthermore, the authoress concludes that
Latvia had to sacrifice its economical sovereignty in order to
preserve its political independence. Is any other choice conceivable,
now or in future?

* * * *

The Republic of
Latvia is a small country situated on the Baltic coast, in Eastern
Europe. The estimated population of 2012 slightly exceeds 2 million.
60% of the population is ethnic Latvians, while a significant part,
i.e. 27.3%, is Russian, demonstrating the legacy of the past.
(Eurostat, 2012)

Just slightly over
20 years ago Latvia was under the Soviet rule and Communists were the
ones who had the power to make decisions. The government of Latvia
was not recognized by the international community. The nation itself
experienced the Soviet economic and political system. In other words,
during the time of occupation, Soviet Union introduced the Russian
language into all aspects of everyday life. The intelligence was
deported and a 5-year economy plan led to empty store shelves and
starving people. Even though the productivity of the agricultural
sector was high, all harvest was transported to other Soviet
territories. Nevertheless, industrial capacity was significantly
improved, employment was high, education was for free, and most of
the basic needs of the nation, such as housing, were satisfied.

Latvia’s de facto
sovereignty was recognized in 1991, and the first years of
independence were spent developing a functioning state. The most
difficult tasks facing the government were the creation of
administrative bodies, reforms in the health and education sector and
also a much needed shift from a planned economy to a market economy.
When a political stability was reached and reforms initiated, the
nation became increasingly concerned about the preservation of its
statehood, so in 1995 the Latvian authorities adopted a statement
defining foreign policy goals. They argued that the sovereignty can
be strengthened through early integration into the European and
world-wide security and political and economic structures. Latvia
became a member state of the UNO in 1991, and joined the EU and NATO
in 2004. (Jundzis,

However, clear
existence goals for the country were absent for the first decade of
independence. While political sovereignty was at the top of the
agenda, the majority of the society believed that the continuous
increase of average human well-being and a long-term conservation of
cultural heritage and Latvian language should be the goals. Even
though the initiated reforms strived for improved living standards,
similar to those of many Western countries, and increased individual
freedom and protected rights, many question whether these reforms and
integration into the EU have supported the achievement of one of the
main goals – improved human well-being in Latvia.
(Pabriks & Purs, 2001)

The Human
Development Index, published by UNDP, assesses the long-term progress
of human development regarding a long and healthy life, access to
knowledge and a decent standard of living. The overall human
development value in Latvia has been positive as the HDI value has
risen from 0.693 (1990) to 0.805 (2011). Hence, the statistics rank
Latvia among other high human development countries. (UNDP,

The majority of
indicators, compared from 1990 to 2010, have followed a positive
trend. Very often the development was slow during the first years of
independence when the reforms were launched. Years later, in the 21st
century, especially after Latvia’s accession to the EU, human
well-being improved more rapidly until the crisis in 2008 which
resulted in its decrease. Nevertheless, improved absolute numbers
should not be overestimated.

The previously
centralized health sector has experienced notable reforms in the last
20 years; thus, the health condition of the inhabitants of Latvia has
improved. The system was decentralized; hence, it entitled the
foundation of private health care institutions; thereby, the health
care became more accessible and more qualitative, as displayed in
Figure 1. Furthermore, as the health expenditure of the state’s
budget has increased and the money from European funds can also be
received, new technologies have been implemented. At the same time,
more and more people are unable to afford the health care services
due to the growing prices.

One can say that in
the Soviet Latvia general care was easily accessible, but, when it
came to a very specific treatment, it was challenging to find a
proper physician. On the plus side, nowadays there are various
physicians specialized in their fields; however, sick people might
have to pay for treatment out of their own pockets in order to
receive help without waiting. Consequently, many people are
unsatisfied with prices of medical care in Latvia. On the bright
side, the quality of care provided has definitely improved over the
past 20 years.

Despite advancements
and reforms in the health care system, demographics are in recession,
which is a serious threat to the country’s succession. A natural
decrease of population due to lower fertility rates and a
considerable migration outflow (especially within the first years of
the collapse of USSR and after Latvia’s accession to the EU) has
contributed to the fact that the population has decreased from 2.67
million in 1990 to 2.24 million in 2010. As a consequence of smaller
number of new-borns and rising life expectancy, the population is
aging, which imposes an increasing burden to the economically active
part of the population to finance the retired people.

Unfortunately, not
only is financing the retired people a serious issue, but also a
complete burden to costs of primary goods which have increased. Thus,
paying for one’s own needs is becoming harder. The results of
surveying 130 people suggest that in the Latvian SSR more than 60 per
cent of the representative sample had funds to pay for all basic
needs, such as food, housing, health care, education. Currently, less
than 40 per cent of respondents have means to pay for all these
needs. The proportion of people who can finance their needs just
partially has risen from 29 to 47 per cent.

Even though the
absolute income has increased, the amount of people earning less than
the subsistence minimum is rising, especially in the rural areas. It
has to be mentioned that the content of Latvia’s subsistence basket
has not been revised since the first year of renewed statehood; thus,
in reality, it does not contain all goods and services required for
living decently. Furthermore, since the accession to the EU, prices
have risen rapidly. For instance, total housing costs have increased
significantly – in the USSR the rent and public utilities were highly
subsidized by the government, whereas in 2005 the average housing
costs amounted to 80 US dollars and 170 dollars in 2009.
(Central Statistical Bureau of Latvia, 2011)

These costs are borne by the private sector and the burden is
becoming heavier due to lower income compared to the costs
themselves. The situation is even worse, considering the fact that
the proportion of overcrowded households is one of the highest within
the EU. If people lived in and paid for apartments so that they were
not characterized as overcrowded, the housing costs would be even
higher compared to their income. Many people agree that they enjoyed
much better housing conditions when they were a part of the communism

Similarly, the
respondents of the survey mentioned that the Soviet Times guaranteed
a certain security regarding employment. The majority of the
economically active population was employed in the Latvian SSR
compared to the 16 per cent unemployment level in 2009.
(Central Statistical Bureau of Latvia, 2011)

Even though the absolute remuneration was considerably lower in the
Soviet times, it had more purchasing power. On the other hand, the
labor market is becoming more knowledge intensive, and the workers –
more educated and better specialized in their professions. Working
conditions have also improved significantly, partly because of the
regulations of the ILO.

Transformation to
knowledge-based economy has been supported by the development of the
education system which is highly recognized by international surveys.
High literacy and enrollment ratios are requirements for the nation
to educate people who can efficiently participate in such natural
resource-scarce economy. Smart people are one of Latvia’s major
assets. Nevertheless, the state has to further advance its education
system, as remarks from the Soviet system are still present (books,
teaching concepts, teachers etc.). Furthermore, the government has to
understand the role of education expenditure. Ongoing budget cuts on
education sector deteriorates the quality, as teachers and professors
lose their motivation and pupils and students become more motivated
to enroll in universities abroad.

The EU has provided
significant advantages to the Latvian population, especially the
youth which now is eligible to study permanently or temporarily at
foreign universities, enjoying the same terms and conditions. Also,
to the people who are entrepreneurial, open-minded and have a certain
understanding of how to take an advantage of new business
opportunities. The EU has also contributed to the modernization of
hospitals, schools and the infrastructure. Furthermore, the EU sets
standards as well as observes the development of human well-being;
therefore, Latvia is motivated and under a pressure to demonstrate
continuous advancement. As a result, the nation believes that the
health and education systems have been improved and provide higher
quality and accessibility. Nevertheless, given their income level,
they are discontent with the prices of the tertiary education and
specialized health care services. On the other hand, the Soviet
government paid for housing, education and health care thus more
resources were available for food items, leisure time, clothing, and
also the employment ratio in the Latvian SSR was close to 100 per
cent. Therefore, there are people who believe that the communism
times ensured better well-being. In addition, the equality within the
population was much higher. However, as very often respondents
mentioned, everybody was equally poor. Nowadays, the income
polarization is a significant issue.

To complete the
picture about human development trends in Latvia, which have followed
different directions, it is worth referring to the final question of
the conducted survey. It asked the respondents when, in their
opinion, the well-being was the highest: in Soviet Latvia, in Latvia
before joining the EU or in Latvia which is a member state of the EU.
As the graph illustrates, the opinions vary – approximately every
third of the respondent pool shares a different view, which simply
further proves the finding that there are indicators which have
improved along the movement towards Europe and there are aspects
which so far the sovereign Latvia has not been able to offer its
people as it was done by the USSR.

In order to succeed
and reach the well-being benchmark set by the Union, first of all, a
sustainable economic growth is needed, resulting in means which could
shift into a social system. Additionally, the political powers have
to cooperate with the society ‒ finding a common ground,
establishing goals that are seen as important and beneficial to the
state itself and its population. It is of utmost importance to assure
that the population lives decently, meaning, their basic needs, such
as food, housing and health care, are satisfied. It should be the
main goal of the government, thereby increasing the satisfaction and
loyalty of the population to the state. Hence, the society would be
willing to contribute to the development process, also by properly
paying taxes.

Furthermore, lessons
from the past should be learned. One of the main arguments for Latvia
entering the EU was the economic advancement. As tariff and
non-tariff barriers would be abolished, the trade between the EU and
Latvia, especially the export originating from Latvia, would further
increase. Productivity would be increased when people started working
into more productive sectors. Furthermore, fixed and human capital
investments were expected to be attracted via low labor costs, the
adoption of EU legislations and additional privatizations.
Investments would initiate an upward growth spiral. Nonetheless,
skeptics argued that not every person residing in Latvia would
benefit. Citizens who benefited the most would be young people, as
they would enter better paid jobs, whereas the pensions of retired
people would not increase as rapidly as the prices of goods and
services. Latvian farms would face serious hardship due to a surplus
in the market resulting from foreign competitors that are subsidized
by their own governments.
(Memo, 2000) They were right. T
EU has suppressed the Latvian economy as a result of shutting down
industrial plants, uncontrolled FDI inflows, enabling cheap credits,
a significant inflation and price increase, and foreign companies
creating a competition which small Latvian companies and farmers
cannot defeat. The smaller economy led to an increasing budget
deficit, external borrowing and, finally, budget cuts demanded by the
IMF and the EU, which have harmed the population as their adjusted
income is not as high as living costs. One can say that Latvia traded
a part of its economic sovereignty in order to ensure its political
independence and the population is paying the price.

However, the people
living in Latvia have been willing to pay this price for the sake of
Latvia’s sovereignty. In a survey, carried out by the national news
portal TVNET, it was asked what the biggest threat to Latvia’s
sovereignty is. 53 per cent of the 5311 respondents indicated Russia
and unknown money influx as the biggest danger. Contrary, just seven
per cent perceive integration into the EU and NATO as imminent danger
to Latvia’s independence.
(LETA, 2004)

On one hand, if Latvia had not joined the EU, the threat imposed by a
money influx would have been limited, but political independence
would have been significantly less insured, suggesting that
preservation of economic and political sovereignty is impossible for
a small country like Latvia. In words of my former professor:
between a dialectic and cyclical history is a distance between
success and fall.


If Latvia had not
joined the EU in 2004, it could have taken its time to develop the
industries which correspond to the society’s interests, not to the
EU regulations. In addition, the migration outflow would have been
smaller; therefore, people who are desperately needed in Latvia to
cultivate the economy would have been available. Hence, the money
influx into an economically stronger country would not have resulted
in such a crisis. In this case Latvia would have experienced a slow
and stable economic and social welfare growth. However, at some point
in time, say 10 years later than the original accession date, Latvia
should have joined the EU, as it is too small to be acting alone on
the global stage. Latvia does not have significant raw materials or
highly developed industries; thus, it lacks international power. Its
needs and ideas are heard and pushed forward only in cases when
stronger partners share the same interests. The EU is a platform
where Latvia can find like-minded countries; therefore, it can find
“allies” and together strive for developments and economic and
political stability.

As for the Latvia’s
situation in the EU, in 2014, Latvia is expected to join the Eurozone
if it fulfils the requirements. At the moment, it is believed that
Latvia will succeed and be allowed to join, but opinions whether the
country really needs to adapt the Euro vary. In September 2012, the
public opinion on the Euro adaptation was record low, as only 13% of
Latvians support the idea. Being a member of Eurozone would further
disable Latvia to control its monetary policy and raise the prices
which would not correspond to the income earned by a less productive
workforce and industries compared to the ones in other EU states.
Therefore, many experts believe that Latvia should postpone its
adoption of the Euro until the future of the Eurozone is clearer and
Latvia recovers from the economic recession and advances its
production regarding productivity and value added.

Once Latvia
substitutes its Latvian Lats for the Euro, it will be economically
even more dependent from the EU and its regulations, but it would
also present new trade opportunities for Latvian companies and
therefore cultivate the economy and increase human well-being. The
state would also become more creditworthy to foreign investors.
Nevertheless, one should not forget how the FDI affected the economy
three years ago. Swedish banks, which acquired Latvian banks, issued
loans excessively and irresponsibly during the pre-crisis period;
thus, fuelling unsustainable and imaginary private consumption and
property prices in the country. Sweden’s position, demanding severe
budget cuts that affected education and the health sector, was
indicative of their fear of losses in case the loans issued decrease
in value due to devaluation. Latvia has to be well prepared before
welcoming Euro as a replacement for its Lats, which was only
reintroduced in1993.


Bajrektarevic, A.
(2013), Of
9/11 and 11/9 – How did Europe become itself?

Taylor & Francis, UK

Bajrektarevic, A.
(2012), Future
of Europe

Europe’s World, Brussels

Central Statistical
Bureau of Latvia (2011), Materiālā
nenodrošinātība Latvijā.

Riga: 2011.

Jundzis, T. (2010),
Valsts Atjaunošanas Parlamentārais Ceļš, 1989-1993.

Rīga: Latvijas Zinātņu akadēmijas Baltijas stratēgisko pētijumu

(2010. gada 11. 3), Ielādēts 2010. gada 19. 5 no KAS JAUNS:

(2004, November 14),
skaidro izmaksu pieaugumu veselības aprūpē
April 9, 2012, from TVnet:

Memo, M. (2000, July
13), “Will
Joining EU and NATO Benefit Latvia?”
Retrieved March 12, 2012, from The
Baltic Times

Pabriks, A., and
Purs, A. (2001), Latvia:
The Challenges of Change.

London: Routledge.

Paiders, J. (2002),

Eiropai! Vai Latvijai ir nākotne ārpus Eiropas Savienības?

Rīga: JPA.

Rajevska, F. (2005),
Policy in Latvia.

Oslo: Fafo.

Tragakes, E.,
Brigis, G., Karaskevica, J., Rurane, A., Stuburs, A., and Zusmane, E.
(2008), Latvia:
Health System Review.

Retrieved February 17, 2012, from European Observatory of Health
Systems and Policies:

UNDP (2011). Human
Development Report 2011: Latvia
Retrieved March 12, 2012, from HDR:

The safest way to purchase drugs online

- Advertisment -

Must Read