Latvians Weary of Corruption to Oust Oligarchs as GDP Lags

Latvia is preparing to oust the “oligarchs” whose parties for a decade controlled swathes of parliament as voters in the Baltic region’s slowest-growing economy tire of corruption.

Opinion polls show parties affiliated with three oligarchs, who influence policy and secretly control companies, according to former President Valdis Zatlers, will win as few as 14 of the legislature’s 100 seats at a Sept. 17 election, down from 51 five years ago and 30 in 2010.

The vote follows a referendum, called by Zatlers, to dissolve parliament after it failed to lift the immunity of a lawmaker facing a criminal probe. Latvians are increasingly frustrated at corruption after the economy, the European Union’s fastest-growing in 2006, shrank by more than a quarter between 2008 and 2010 leading to a surge in unemployment and wage cuts heightening the debt load of consumers who took mortgages during the country’s economic boom.

“They ended up carrying the can for the economic slump,” Aidan Manktelow, an analyst at the Economist Intelligence Unit in London, said by e-mail Sept. 1. “But the corruption allegations have certainly played a big role.”

Three men named by Zatlers on May 29 as oligarchs -- Aivars Lembergs, mayor of the port city of Ventspils, and lawmakers Ainars Slesers and Andris Skele -- had parties in positions of power during the economic boom. Lembergs’s Greens and Farmers Union, Slesers’s Latvian First Party/Latvian Way and Skele’s People’s Party all lost ground in the elections a year ago.

Growth Lags Rivals

Economic growth at 5.6 percent from a year earlier in the second quarter lagged behind Estonia’s 8.4 percent and Lithuania’s 6.3 percent pace, with unemployment still more than twice pre-crisis levels. That has damaged support for Lembergs’s party, the junior partner in the ruling coalition.

Prime Minister Valdis Dombrovskis, who took office in March 2009 after the previous government fell, was able to avoid much of the public anger over the crisis and his Unity bloc took 33 seats, the most for any party, in the elections last year.

The yield on Latvia’s 400 million euro bond due 2018 fell 1 basis point to 4.65 percent today, near last week’s record low of 4.64 percent.

Lawmakers refused in May to revoke Slesers’s parliamentary immunity to allow a search of his home by Latvia’s anti- corruption agency, which investigated bribery and the secret ownership of companies operating at the port in Riga, the capital.

‘Privatize Democracy’

Zatlers sought to dissolve parliament as a result, warning of attempts to “privatize democracy.” The referendum was supported by about 95 percent of voters.

Lawmakers rejected Zatlers’s bid for a second term the following week, prompting about 10,000 people to protest against the oligarchs in Riga.

The Greens and Farmers Union, which has nominated Lembergs as its candidate for prime minister, may win 8.5 percent of this month’s vote, according to a Latvijas Fakti poll conducted Sept. 8-9 and commissioned by the Baltic News Service. That may exclude it from the next government.

“I expect us to get fewer seats than we have now,” Lembergs said in a phone interview Aug. 30.

Slesers’s party may not reach the 5 percent threshold needed for entry, according to the same poll. No margin of error was given. Skele abolished his People’s Party, which faced a 1 million-lati ($2 million) fine for overspending during the 2006 election campaign, on July 9.

Political Clout

“For them to be influential, they need a political presence,” said Nils Muiznieks, a political-science professor at the University of Latvia. “It’s clear Slesers and Skele have lost most of their clout. Lembergs still has his, but if his party is left in opposition, it weakens him significantly.”

Zatlers, who the three men’s parties had backed when he was elected four years ago, formed his own party, may win 11.5 percent of the vote, down from 17.3 percent a month ago, according to the Latvijas Fakti poll.

Dombrovskis’s Unity party, may take 13.6 percent, while Harmony Center, which represents Latvia’s Russian-speaking population, may receive 20.3 percent, according to the poll.

Like Slesers and Skele, Lembergs denies involvement in illegal activity. “I’m not an oligarch, I’m a public person, a politician,” he said in an interview. “Zatlers lacks other arguments so he started to abuse me.”

The Ventspils mayor has been on trial in Latvia for bribery, money laundering and abuse of office since 2008. Lembergs is also a defendant in U.K. litigation over freight fraud, with a London court naming him among five beneficiary owners of Latvian Shipping Company, according to a judgment released May 24, 2010.

“I don’t have anything to do with Latvian Shipping Company,” said Lembergs.

‘Completely Useless’

The courts in Latvia and the U.K. have in total frozen assets related to Lembergs and his family of about $200 million as part of different court proceedings.

Lembergs, Slesers and Skele were among the most prominent politicians during Latvia’s longest period of growth since independence in 1991, with Skele serving three times as prime minister from 1995-2000. Even so, many blame the recession on their parties’ mismanagement.

Latvia was granted a 7.5 billion-euro ($10.8-billion) international bailout in 2008 after a real-estate bubble burst and its second-biggest bank collapsed leading to an accumulated collapse or 27.7 percent of output over nine quarters.

“The oligarchs turned out to be completely useless and incapable when the crisis hit,” Aigars Freimanis, director of polling company Latvijas Fakti, said in a phone interview Aug. 30. “People’s hopes for a better life were destroyed.”

To contact the reporters on this story: Aaron Eglitis in Riga at aeglitis@bloomberg.net Kira Savcenko in London at ksavcenko@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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