All eyes on Tautas Partija! 9

I think the People's Party (TP) is a key to what will happen next. And it's not just because it's the largest party in the Latvian Parliament. First, it's much more than just a largest party and, second, it is facing some very interesting incentives now. Let me explain.

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First, some trivia on Latvian politics. What many outsiders don't understand is that ruling coalitions in Latvia are not built from a simple majority in the Saeima (Parliament). Latvia is an ethnically divided country where ethnic Latvians voted for 'Latvian' parties, and a sizable Russian minority votes for 'Russian' parties. The product of these ethnic tension is that in politics, Latvian and Russian parties cannot co-exist. A Russian party has never been to the ruling coalition. For example, in the last election, SC and PCTVL, the 'Russian' parties, got 23 seats in the Parliament. Since each 'Latvian' party thinks allying with a 'Russian' party is political suicide, a ruling coalition really operates with (51/(100-23))*100=66% of the relevant vote. This also explains why Latvian political system is so ineffective. Ethnic divisions severely restrict options for forming coalitions and increase bargaining power of each coalition member vis-a-vis other members. In the current Saeima, for instance, effective exclusion of 'Russian' parties means there are only four possible majority coalitions of minimum necessary size. These are:

TP+JL+ZZS=59 votes
TP+JL+LPP/LC=51 votes
TP+ZZS+LPP=51 votes
JL+ZZS+LPP/LC+TB=54 votes

Note that there is only one possible coalition (#4) without People's Party (TP). This, however, requires New Era Party (JL) to go in with the First Party/Latvian Way (LPP/LC), which they [JL] detest more than anybody else. Besides, LPP/LC was brave enough to share power with the Harmony Center, a Russian(!) party in the Riga City Council, which complicates matters even further. Naturally, both People's Party and the New Era understand this very well. It is probably only a slight exaggeration to say that New Era party cannot govern without the People's Party.

Second, People's Party is cornered. According to the polls, if elections were tomorrow, it would only get 2% of the vote (5% is the minimum threshold to get elected). The main reason is that People's Party presided over the 'fat years' and is universally blamed (somewhat deservedly) for the economic crisis. The election is in October of 2010. If the economy would not recover by then, voters would blame People's Party (and New Era). If the economy would show signs of recovery, voters would attribute any success to New Era party, but would still blame TP. Either way, it's extremely unlikely that People's Party would be re-elected.

The leaders of People's Party must be aware of this, and they are making moves. So far most of these resemble helpless convulsions, like making fuss about budget reductions in the ministries controlled by the TP. But the logic of deflation is inescapable. People's Party must either implement unpopular budget cuts and tax increases, or open itself to accusations (from eager New Era) of trying to sabotage a stabilization program that it itself signed into life. Clearly, the only way for the TP to distance itself from the unpopular measures is a radical change of approach. And the only alternative to deflation is devaluation. If TP pushed for devaluation and it helped the economy, People's Party could come on top by claiming that they saved the country from the fallacies of the present government. That could be a ticket to re-election. I see no other alternatives. If TP sticks to the deflation plan, it is not re-elected, no matter how much noise it makes. If TP initiates devaluation and it fails, it is not re-elected. If devaluation works (as I think it would), TP comes on top. The solution is clear.

The two important questions are whether (i) TP understands it; and (ii) it can initiate devaluation. I think the answers to both questions are "yes". First, TP politicians increasingly talk of devaluation. TP invited Torbjorn Becker (a known advocate of devaluation) to speak at its congress, after an unsuccessful attempt to invite Edward Hugh (another ardent advocate of devaluation). Mr Skele, often described as the Godfather of TP, made a speech (at the congress) effectively saying there should be 15% devaluation. What could hold TP back are (substantial) political risks of such a move. Large majority of Latvians, subjected to extraordinary amount of propaganda from the government, the Central Bank, and the commercial banks, do not favor devaluation. This could change, of course, if devaluation were to work. After all, there was a time when majority firmly believed that Earth was flat.

Second, TP has ( exactly one) option. The only (minimum) coalition without JL is #3: TP+ZZS+LPP/LC, with 51 votes. TB or LPP/LC new friend, SC, might throw in their support as well. Of course, New Era can prevent this. It has has (exactly one) option: JL+ZZS+LPP/LC+TB with 54 votes. The question is, can it be friends with its enemy: LPP/LC? LPP/LC will probably support any move (devaluation or deflation) if it were sufficiently rewarded. This leaves us with one more question of what would be the position of ZZS, i.e. the farmers' party. The farmers have plenty of FX denominated loans, but they would also gain a lot from devaluation. CAP payments are denominated in euros and then there are exports and demand substitution effects. I think ZZS could easily side with TP on this. No matter how you look at this, TP is the key player.

So, all eyes on TP!


Some readers (Reinis and Q) kindly pointed out that I ignored some relatively recent development in the Saeima, such as the breaking up of both the New Era Party and the People's Party. The Saeima now is indeed substantially more fragmented. To simplify the analysis, I will lump the New Era Party (14 MPs), Pilsoniska Savieniba (7 MPs), and SCP (2 MPs) into one 'party': JL&Co (23 MPs). The reason is that these parties declared they will go into the next election as one block. This modifies above analysis as follows. Excluding 'Russian' parties, there are still four coalitions:

TP+JL&Co+ZZS=61 votes

TP+JL&Co+LPP/LC=54 votes

JL&Co+ZZS+LPP/LC+TB=55 votes

TP+ZZS+LPP/LC+TB=53 votes

There is still only one coalition without the People's Party. If People's Party wishes to go without the New Era Party, it also needs to get TB. I have no priors as to how likely that is. Thus, the task of People's Party is harder, but not impossible.

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Komentāri (9) secība: augoša / dilstoša

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a > I 13.09.2009 17:27
"nav argumentu, ko devalvacija izdaris labu"

Ir pilns ar argumentiem, kāpēc ārēja devalvācija ir pieņemamāka par iekšēju.

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V Dombrovsky -> Reinis 11.09.2009 21:52
Thank you for a very detailed and (also) pretty good comment. I did forget that Jaunais Laiks (and TP) split. Thanks for pointing this out. I updated the main post accordingly. As to your other points:
1. Re ethnic voting. This is basically a 'white swan'/'black swan' argument. All I am saying is that in the last eighteen years we've only seen the white swans (no Russian parties in the ruling coalition). I therefore extrapolate that the next 'swan' would be 'white' as well. It is always possible that the 'swan' will be 'black', but I think it unlikely. Did the fires of ethnic intolerance die out, or were simply overshadowed by the crisis. I don't have the time to argue about this here. I leave it to the readers to decide whether it is a reasonable assumption or not.
2. The Farmer's and Greens might not cater to their voters? Maybe. I am only pointing out that their participation in 'devaluation' project, should TP initiate one, is not unlikely. Incidentally, Mr Lembergs, who you're referring to, profits from transit. Transit revenues are in foreign currencies, too.
3. Re the Bank, I'd be surprised if there was nothing that a parliamentarian majority could do about it.

Re the 66%, sorry for being unclear. What I wanted to point out is that a voting body with effective 'disenfranchisement' (from the ruling coalition) of SC+PCTVL is equivalent to a 'normal' voting body that requires a ruling coalition to have a 66% majority.

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Alla 11.09.2009 17:51
You should also take into account that Mr.Šķēle has large amounts of loans in Lats. So, Mr.Šķēle for his own sake might just need devaluation. And if it is agony of TP, why not to push for devaluation - no matter what happens with TP after. I think that nobody doubts, that TP will not get elected in the next parliamental elections. It is not a question anymore.

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agd 11.09.2009 14:26

Jums nav taisnība - tādu latviešu, kas balsoja par SC, bija ļoti maz, savukārt, bija pietiekami daudz krievu, kas nobalsoja par Šleseru.
To var viegli noskaidrot elementārā vēlēšanu rezultātu analīzē. Ja labi samaksāsiet, es Jums tādu varu aizsūtīt :)

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Q 11.09.2009 11:33
Where are the entries/positioning of new political entities like Sabiedriba Citai Politikai and Pilsoniska Savieniba? No allowances for Dark Horses? Is everything going to be so predictable? I bet- not!

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Reinis 11.09.2009 07:42
Although I can agree with some concepts of this article, the author has not been too careful to select arguments and to make conclusions. The author is slightly biased in what he writes on Latvian and Russian parties. While he says that Latvians vote basically for Latvian parties and Russians are less prone to limit their choices with ethnic matters, municipality elections proved this not to be true with many Latvians voting for Saskaņas centrs (Harmony Centre), receiving far more votes than ethnic composition would suggest. As of rationale behind Farmers and Greens - one should not operate with so simple arguments as it is widely known that their decisions are coordinated with handful or even one of their influential supporters. And their (his) logic can differ from their not-so-demanding voters. As of possibilities of any party to press on devaluation - it is rather short-sighted to assert that they are able to influence decisions made by Bank of Latvia. The argument of independence of the Bank is completely absent in the article. Please mention at least one counterargument to show reasoning to start discussing about it at all. A successfule devaluation might improve positions of TP in next year's elections? I doubt it. At first, only one year is left to start pressing the Bank (what I find unlikely to bring any success), and it is not enough to show any substantial economic recovery - at least at the level of voters who would have suffering from devaluation in their fresh memory. You also have to take mass media position into account, and not many would back TP's decision to devalue. Author mentions that politicians increasingly talk of devaluation. Although this is true with TP, this is still the only visible party to talk about it. No partners in it. As of Jaunais laiks (New Era) and LPP/LC's cooperation - it is oversimplification to argue that they will never cooperate. Problems with TP have been about as large, but both have been in the same coalition now for 6 months. And, if we talk of parties, the author has apparently forgotten that Jaunais laiks is now split in halfs, with Pilsoniskā savienība (Civic Union) being the not so small offshoot. Although there is an agreement between them on cooperation for the next elections, one cannot talk of them as one party. Also, formula "(51/(100-23))*100=66%" is obscure - what does author want to say with "operate with X of relevant vote"? The author might have wanted to argue that in order to form a coalition in Saeima, 2/3rds of Latvian voters' deputies are to be involved but then it is not clearly put. Except that the division is not that strong anymore, as LPP/LC have already started cooperation (even with some merging talks), and Tautas partija (People's Party) employing some border-breaking rhetorics from time to time.

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Andris_2 10.09.2009 21:53
Paldies par piedāvāto skatījumu! Būs interesanti pasekot.

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I 10.09.2009 21:00
Manuprat, sis ieraksts ir tas pats, kas pateikt " fas" sturi iedzitam sunim. Turklat uz ne seviski veiksmigas argumentacijas bazes: 1) nav argumentu, ko devalvacija izdaris labu (iznemot augosas cenas); 2) nav pareizs pamatpienemums: TP nav problemu sadarboties ar SC. Skele sadu iespeju piemineja jau pirms daziem gadiem + pasaktieties, kas notiek Rigas Dome. Lidz sim, TP esot varas pozicijas, taa to nedarija strategisku apsverumu del - tagad, kad uz speles ir vara, TP taisis koaliciju ar JEBKO.

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agd 10.09.2009 20:09
Devalvācija nenotiks vairāku iemeslu dēļ.

Valdības koalīcija var mainīties tikai vienā veidā - vairākuma koalīcijas vietā mazākuma koalīcija bez TP, bet ar LPP+SC atklātu vai slēptu atbalstu (piemēram, nebalsojot būtiskos balsojumos). Taču domāju, ka reāli valdība stāvēs līdz pat nākamā gada novembrim, jo TP ir iekšēji tik sašķelta, ka tā šobrīd nevar pieņemt nevienu lēmumu.

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