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Vol 2, No 15
17 April 2000
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Amber CoastStability Sacrificed
Mel Huang

Political tension in Latvia is a normal occurence, but in recent weeks, it has shifted into overdrive, threatening to bring down the government. On 12 April, it did just that, as Prime Minister Andris Šķēle resigned after losing the support of his two junior coalition members. Though issues concerning privatisation and other heated matters played a significant role in the collapse, the personality factor that plagues Latvian politics was also a major reason behind this recent government crisis.

The timing of this collapse could not be any worse. Having survived for less than a year, the government's fall comes just before the much-anticipated ministerial meeting of the European Bank for Reconstruction and Development (EBRD), due to take place in May in
Outgoing Prime Minister Andris Skele
Outgoing PM
Andris Šķēle
Riga. It also comes at the start of Latvia's actual negotiations with the European Union, as well as during one of the lowest points in Latvian-Russian relations.

However, this government has, deservedly or not, taken a lot of heat on account of several nagging and ongoing scandals. Whatever comes of the so-called paedophilia scandal [See Amber Coast, "Politicking over Paedophilia," 21 February 2000], the fact is that it has diverted much attention and energy from more important issues, such as harmonising Latvian laws with the EU's acquis communautaire or even real and active policies protecting children from sexual abuse. There have also been scandals involving the construction of a "luxury playpen" in the government chancellery, undue influences on the privatisation process, the Prime Minister's business holdings and much more. The stepping down of Šķēle, in a way, allows for the new government to come in and deal with the mess quicker - especially with the budget season looming.

The final straws

By March, the ruling coalition was already obviously straining under the extra pressure of scandal and privatisation issues. The success in selling off a large chunk of gas utility Latvijas Gaze (Latvian Gas), which brought in over LVL 28 million (over USD 48 million), did not quell the tension, especially in the relationship of Economics Minister Vladimirs Makarovs with Latvian Privatisation Agency (LPA) head Jānis Naglis and, of course, Prime Minister Šķēle. Šķēle, the leader of the People's Party, publicly scolded Makarovs of For
Sacked Economics Minister Vladimirs Makarovs
Sacked Economics
Minister Makarovs
Fatherland and Freedom several times regarding ministerial conduct - usually on issues linked to privatisation - during the turbulent reign. Some of these arguments, especially the earlier ones, seem similar to those that took place between their predecessors, former Economics Minister Ainārs Šlesers and former Premier Vilis Krištopans [see Amber Coast, "They're All Paid Off," 17 May 1999, for more on this vocal story].

For many months, Makarovs criticised the growing partisan nature of the privatisation process. For Fatherland and Freedom, a nationalist party, is not a strong supporter of privatising large state entities considered vital, especially the power utility Latvenergo. Makarovs for months expressed vocal criticism against LPA chief Naglis, who happens also to be a board member of the third coalition partner, Latvia's Way. Makarovs made no secret about his desire to remove Naglis and saw the perfect opportunity when Naglis's employment contract expired in March. Makarovs stated publicly that he would not extend the contract.

However, a twist soon appeared in another contract, bearing the signature of then Economics Minister Šlesers, which in essence made the post held by Naglis open-ended. In his point-of-view, Makarovs failed to get majority backing in the evenly divided (five members apiece in the 15-member cabinet) government concerning the contract. Not surprisingly, the legal backing for the open-ended contract came from the Justice Ministry, headed by Valdis Birkavs of Latvia's Way. Incensed and feeling that his party's view was correct, Makarovs suddenly terminated Naglis's signatory rights, registering the revocation with the Companies Register immediately. Shocked by this, Šķēle, as soon as he could, revoked the order given by Makarovs, and the stage was set for a showdown.

Šķēle sacked Makarovs the next morning and assumed the portfolio temporarily. Within that time, he renewed the signatory rights of Naglis at the LPA and the collapsing government voted (with support coming from the People's Party and Latvia's Way, and opposition from For Fatherland and Freedom) to extend Naglis's work contract, until the LPA wound up operations in January 2001. Believing that Šķēle gave no solid reason for the sacking of Makarovs, For Fatherland and Freedom re-nominated Makarovs for the post of economics minister, which Šķēle rejected, causing the coalition to collapse.

Even before this current escapade, privatisation had been a messy issue over the past few months. The failure to privatise Latvijas Kuģniecība (LK, Latvian Shipping Company) for the umpteenth time brought mutual accusations of self-interest and imprudent policies. Over the past two years, attempts to sell LK have faltered time after time, while the proposed sale price per share has dropped by over fourfold. Even more contentious is the proposed reorganisation and sell-off of power utility Latvenergo. Though an opposition-backed move to halt the process failed this past week in a plenary session of the Saeima, an industry-based union has been pushing for a public referendum on the proposed privatisation. Throwing in a curveball, resigned Latvenergo board chairman Valdis Ginters claims he was threatened and, thus, coerced into quitting over privatisation. One daily even documented a tape containing such threats, made by an associate of the Premier.

Šķēle's stints

Andris Šķēle has been criticised, on account of all his three prime ministerial stints, for being less than democratic in his approach to his cabinet and characterised as a Napoleon type by his fierce opponents and (reluctant) allies alike. Though he appears abrasive and pushy, Šķēle's track record has, in fact, been very good. Each time he has led the government, he brought Latvia out of massive political and economic crises, ranging from the 1995 hung elections to the 1999 recession, due to the Russian economic meltdown. Despite such successes, when push came to shove, the personality factor took over. This became apparent the moment he took office [see Amber Coast, "A Hot Summer in Riga," 26 July 1999, for a recap of his blazing return to the Prime Minister's post].

Since becoming Prime Minister last summer, Šķēle has been fending off allegations of favouritism and conflict of interest, namely with regard to his ownership of the massive food-processing conglomerate Ave Lat. Before the full impact of the Russian economic crisis set in, the food-processing industry and the oil transport industry were the most powerful sectors in Latvia - both economically and politically. Naturally then, Šķēle's biggest enemy and public detractor is Aivars Lembergs, the mayor of the port
Ventspils Mayor Aivars Lembergs
Ventspils Mayor
Aivars Lembergs
and oil transport city of Ventspils. Week after week for months on end, the two traded insults and accusations in public, which has even led to the filing of slander complaints.

With all the public pressure, Šķēle soon went through PriceWaterhouseCoopers and found an independent holding and management agency for his company, which the internationally reputable firm assured was independent from Šķēle himself. However, rumours persisted that Šķēle had a hand in the management agency. Then came a shocker, which did not help Šķēle's image one bit: he announced that earlier in the year, he had sold the company. Later, income declarations showed that he had received USD 29 million in promissory notes, which became fuel for his opponents to use against him. Rumours again persisted that Šķēle, in fact, had sold the company to himself via an offshore route. Then the question came, where did he get USD 29 million, or a comparable amount, in the first place? The situation was not helped by the release of a poll in which 75.9 per cent of respondents said it was impossible to get rich by honest means.

For his opponents, the time was ripe for feeding. Lembergs accused Šķēle in no uncertain terms of acquiring the money by criminal means. For Fatherland and Freedom insisted on a clear explanation on how the Prime Minister came into such a sum of money, an explanation they then later rejected, following the sacking of Makarovs. Makarovs himself suggested that Šķēle wanted to engage in privatisation himself, as he placed himself in the all-important Economics Ministry portfolio. In many ways, by trying to quell rumours and accusations of conflict of interest, Šķēle, by selling his company, made his position nearly untenable.

Quick thinking

Though the three-party coalition was the best viable combination in the current Saeima, it was clear it was not a happy relationship. The coalition had been founded around the vote for the controversial language law (which was vetoed) in the summer of 1999, from within and outside of the collapsing government of then Prime Minister Krištopans. However, political observers began counting the days of this government already in December 1999, when the ruling coalition split during voting for a watered-down version of the language law. Angered by the compromise but not wanting to formally break the coalition at the time, For Fatherland and Freedom noticeably and vocally abstained from the vote. For some, the coalition's raison d'étre was gone. For others, there had never been a raison d'étre for this coalition at all, except convenience and pragmatism, considering the breakdown of seats in the Saeima.

Conveniently, when the whole mess surrounding the sacking of Makarovs broke, the opposition Social Democrats placed a no-confidence motion in the Saeima against three ministers from the People's Party: Prime Minister Šķēle, Finance Minister Edmunds Krastiņš and Education Minister Māris Vītols. The board of the Saeima placed the motion on the calendar for 13 April. Šķēle was already concerned whether For Fatherland and Freedom would cause the motion to carry, as the party has a good relationship with the Social Democrats. More trouble came when Transport Minister Anatolijs Gorbunovs of Latvia's Way challenged Finance Minister Krastiņš over road spending cuts, leaving open the possibility of even his "loyal partner" in the coalition shooting down one of his right-hand men. Šķēle resigned before the vote, which was coincidentally scheduled on the same day the ad hoc committee investigating the so-called paedophilia scandal issued its report confirming the previously alleged links of some top government officials, including Šķēle, to the scandal. Though all officials named by the report maintain their full innocence (Justice Minister Birkavs even went on a one-week hunger strike to underline this point earlier this year), it will no doubt still divert much of the media and political focus in the near term.

It also seemed clear a month ago that the government was hobbling along on its last leg. The three parties in the ruling coalition voiced contradictory viewpoints on various issues, not only privatisation. Latvia's Way made a symbolic statement about the party's expectation for the government's survival, when they signed a strangely timed agreement with the small centre-left New Party for co-operation in next year's local elections. Most observers realised the agreement had less to do with the elections in 2001, in which the New Party - being rather unpopular in the polls - would likely not do well, but with the eight seats held by the party in the Saeima. Calculations had been made that in the event that For Fatherland and Freedom pulls its 16 seats out of the coalition, the replacement with the New Party would allow the coalition to survive with a majority of 53 seats in the 100-seat chamber.

So, when the government collapsed and talks between parties began on the formation of a new government, it was no surprise that Latvia's Way became the champion for the New Party. Latvia's Way, which has been asked by the other parties to head the new coalition government, has insisted on bringing in the small party to create a four-party coalition. Rumours about alleged links to common "backers" aside, the ties between Latvia's Way and the New Party certainly show pragmatism. With them in place, the proposed four-party coalition would survive a sudden pull-out by either the left-leaning New Party or the nationalist For Fatherland and Freedom, especially over issues such as privatisation.

Now what?

The parties are now jockeying for position in the new government. The granting of the prime ministerial chair to a member of Latvia's Way is not in dispute among any of the possible partners, though the allocation of individual portfolios will be a difficult struggle. The People's Party will surely want serious compensation, portfolio-wise, for losing the prime minister's and most likely the finance minister's posts; it could try to wrestle one or both of the portfolios that have been under Latvia's Way's wing since the first true post-independence government: foreign affairs and transport. Latvia's Way will fight hard to keep both, and both incumbents - Foreign Minister Indulis Bērziņš and Transport Minister Gorbunovs - have made statements to that fact. If the New Party comes into the coalition, there will need to be a re-balancing of portfolio allocations from the current five-per-party, perhaps even the creation of new ministerial jobs without portfolios or the eradication of posts, such as minister for co-operation with international finance institutions.

Possible new PM Aija Poca
Possible new PM
Aija Poča
Latvia's Way polled its faction, and MP Aija Poča received the most nods among the group of five possible candidates for the prime minister's post. Most of the other candidates, including Gorbunovs and Bērziņš, have stated their lack of interest in the job. However, Poča also expressed disinterest, suggesting that Latvia may not be ready for two female leaders (the other, of course, being President Vaira Vīķe-Freiberga). As of the time of writing, these issues remained unresolved and would require many more tense meetings among these parties. With the amount of harsh words exchanged over the past weeks, these sessions will be also provide time to forgive and heal - or cover up - the deep wounds.

Will the next coalition survive until the general election of 2002? Judging by current trends, no, with the life-span of governments in this parliamentary cycle falling far short of one year. But with the unpredictability of Latvian politics, nothing can be ruled out [take a nostalgic look at the very first Amber Coast, "Stability Still Not in Style," from 19 January 1999]. However, it appears that stability is still not in style, and Latvian politics will remain as chaotic - and dramatic - as ever.

Mel Huang, 13 April 2000

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