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Latvia held early parliamentary elections on September 17th, only one year after the last elections to parliament. The voting came after former President Valdis Zatlers called for a referendum on the dissolution of the parliament, because the parliament let one parliamentarian-cum-oligarch, Ainars Slesers, keep his parliamentary immunity in spite of prosecution for corruption. In July, the Latvians, seeking to bring the oligarchs to justice, voted overwhelmingly for the dissolution. This election was a second resounding victory of the reformers.
This small Baltic nation has a parliamentary system, and the president, who is elected by the parliament, not by the people, has little power. The dividing lines in Latvian politics are quite different from those in other countries. One line runs between ethnic Russians, who comprise about a quarter of the voters, and ethnic Latvians. The other divide is between oligarchs, who are alleged to have made fortunes on sweetheart deals with consecutive governments, and center-right reformers who advocate cleaner and more just form of capitalism.
Traditionally, Latvia has had three oligarchic (and ethnically Latvian) parties, each formed around one oligarch: Slesers, Aivars Lembergs, and Andris Skele. Their three parties have usually held about half the seats in the parliament. In the 1990s, oligarchs, liberal reformers, and Latvian nationalists were mixed in rather personalized parties, but in the last decade, these three groups have gradually separated. As GDP fell by 25 percent in 2008-09, Latvians increasingly realized that the oligarchs were to blame.
Latvian governments are unstable and usually last for a year or so. The two most recent governments have been uncomfortable coalitions between Prime Minister Valdis Dombrovskis' reformist Unity party and oligarchic parties. Dombrovskis championed a program of International Monetary Fund (IMF) austerity and managed to turn the deep output drop into growth after only two years. Surprisingly, Latvia's GDP grew by an annualized 5.6 percent in the second quarter of 2011, and unemployment has fallen from 21 percent to 16 percent. Yet, at each turn oligarchs have tried to halt this successful program until they have felt forced to give in, as the alternative would have been national ruin.
In the 2006 elections, three oligarchic parties received 51 out of 100 seats against 18 percent for Dombrovskis' reformers. In 2010, two oligarch parties obtained 30 seats against 33 for Unity. In this election, the single remaining oligarchic party, the Union of Greens and Farmers, got merely 13 mandates, while the two confusingly similar reform parties surged to 42 seats. The former president had set up his own Zatlers Reform party, which received 22 seats, while Unity's share fell to 20 seats.
The 2010 elections were about economic reform and austerity, and the center-right reformers won on their successful crisis resolution. The campaign featured charges that the oligarchs had enriched themselves through non-transparent deals at the highest state level. Skele gave up and dissolved his party before the elections. Slesers ran a party named for him but failed to cross the 5 percent margin for representation. Only Lembergs is left standing, but for the first time since independence, his party will not be a part of the next governing coalition.
The almost identical reform parties decided instantly to form a coalition and have already agreed on economic policy. They want to cut the budget deficit to 2.5 percent of GDP in 2012 and adopt the euro in 2014.
The question is which of the two remaining parties will join their coalition. Only one is needed to form a parliamentary majority. The most expected choice is the Latvian nationalist National Alliance, which advanced from 8 seats to 14 seats. It agrees with the reform parties on economic policy and has participated in most Latvian governments.
The alternative is Harmony Center, the ethnically Russian party, which became the biggest party with 31 seats. But it gained only two seats and has no natural allies. Its big problem is that it has failed to recognize that the Soviet Union actually occupied Latvia, an issue that is sine qua non for any acceptance from all the four ethnically Latvian parties. Moreover, Harmony Center has regularly voted for the oligarchs in the parliament, and it cannot reach a majority together with Lembergs.
Strangely, among leading English publications, only Bloomberg, with an excellent correspondent in Riga, has understood this story. The rest claim it is earth-shattering that an ethnically Russian party became the biggest winner. They overlook the importance of the rules under proportional representation, under which the largest coalition forms the government.
A few quotes illustrate the misleading impression left by their reporting: "A left-wing, pro-Russia party captured the most votes in Latvia's parliamentary elections, marking a milestone…" (AP/Wall Street Journal). "A pro-Russia party could emerge one of the big winners in Latvia's snap election on Saturday, a historic watershed…" (Washington Post). "Pro-Russia party may take power in Latvia if it can form coalition." (Guardian) "Harmony Center's opponents could still block its entry into the government by uniting in coalition… Even so, the party's rise to prominence is remarkable…" (New York Times).These reports reflect an overly easy acceptance of the party's self-serving propaganda.
On the contrary, the essence of the two last Latvian elections is that Latvians voted to defeat their oligarchs and that the country's successful austerity program helped the reformers to reveal the harm of the oligarchs. Meanwhile relations between Russia and Latvia have never been better and ethnic issues have never been less controversial. And the rapid economic recovery proceeds.
