Latvian crisis closing schools, hospitals
May 26 at 16:14Now she's leaving, moving to her native Russia to flee a crisis that has forced the government to slash her salary and that of many other public employees by 20 percent.
"I don't see any future here for my children. I don't believe in this country any more," says Stroganova, a 44-year-old who shares a three-room apartment in Riga with her 23-year-old son and 9-year-old daughter.
Her reduced monthly salary of 370 lats ($730) is not enough to make ends meet - the winter heating bill alone was nearly 100 lats ($200) a month. And with further cuts expected she's not taking any chances.
"I don't believe the economy will ever pick up again in this country," she says. "This country doesn't produce anything that the rest of the world wants."
Her comments reflect the deepening sense of despair seeping through Latvia as the economy nosedives, with public employees like teachers and police officers feeling much of the pain as the government chops its budget to meet the terms of a -7.5 billion ($10.5 billion) international bailout package.
Riga police captain Agris Suna, a 44-year-old father of three with 16 years on the force, says he's making 450 lats ($900) a month after a 30-percent pay cut in January.
"The monthly utility bill for my apartment eats up half my salary, and the rest goes for food. That's it - no more new clothes, no more anything," he says.
Economists were debating whether Latvia was in a recession or a more serious depression, when all doubt was erased by statistics for the first three months of 2009. The economy shrank by a mind-boggling 18 percent - the steepest fall in the 27-member European Union and one of the most dramatic drops anywhere in the global downturn. And there's no end in sight.
"We do not see this as the bottom," Danske Bank analyst Lars Christensen says. "The situation is still extremely challenging. It now looks like Latvia may see a 20 percent drop in GDP this year."
The signs of implosion are popping up in the graceful Art Nouveau blocks of downtown Riga, the capital. Dozens of shops have been abandoned. Restaurants and beauty salons are empty. Streets are quieter as cars repossessed from bankrupt Latvians are sold to foreign buyers at discount prices.
The drop in economic activity has reduced tax revenues and forced the center-right government to adopt painful spending cuts.
It says Latvia can no longer afford to have one of the highest proportions of hospital beds in Europe, and the Health Ministry is preparing to close two-thirds of the nation's 73 inpatient hospitals. Dozens of schools will also have to close
Public employees who keep their jobs are likely to face further pay cuts, such as police, judges and other public servants, who have seen their salaries slashed.
Analysts say Latvia, like Baltic neighbors Estonia and Lithuania, is paying the price of a lending binge fueled by overexuberance in the boom years after the three - formerly part of the Soviet Union, which fell apart in 1991 - joined the EU in 2004.
Enticed by cheap, easy-to-get loans, Latvians snapped up consumer goods, automobiles, and real estate. Salaries rose quickly and inflation soared to nearly 18 percent.
The bubble burst at the worst possible time, right before the global downturn set in. Now Latvia is a study in frightening data.
Unemployment hit 16 percent in March, according to EU statistics. Retail sales fell one-fourth in the first quarter. New car registrations dropped 75 percent in January to April. And corporate tax revenues in April plummeted 85 percent compared with the same month in 2008.
In January, an anti-government demonstration turned violent as dozens of angry protesters rioted in the capital, clashing with police, looting shops and setting fire to vehicles. More than 40 people were injured.
The unrest forced the previous government to resign, and the new coalition led by Prime Minister Valdis Dombrovskis is also under immense pressure.
The terms of the bailout loan signed in December from the International Monetary Fund, the EU and the Nordic countries, require the budget deficit to stay within 5 percent. But that figure was based on an assumption that the economy would contract by 5 percent this year.
Dombrovskis wants to increase the deficit to 7 percent - and that was based on a GDP drop of 12 percent, which now is looking too optimistic.
Some analysts say Latvia should devalue its currency, which is pegged to the euro, to ease the pain. But the government has stuck to the peg since abandoning it would trigger widescale defaults on loans taken out in foreign currency and a new wave of inflation, and could topple many of the country's 27 banks.
A devaluation is also discouraged by Swedish banks Swedbank, SEB and Nordea, which account for 50 percent of Latvia's banking industry. Any mass default in the Baltics would reverberate through Sweden as well. Swedbank's share price is down 63 percent over the year on its exposure to the volatile Baltic markets.
Ivars Ijabs, an assistant professor of political science at the University of Latvia, says the governments tough measures are the only way to avoid an even worse outcome.
"We are not going to become a Somalia, but we can easily become a Moldova - a country where all the working population is leaving just to find a job somewhere," said Ijabs.