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United Nations Independent Expert on the effects of foreign debt and other related international financial obligations of States on the full enjoyment of all human rights, particularly economic, social and cultural rights - Mission to Latvia, 14-18 May 2012

END OF MISSION STATEMENT

Riga, 18 May 2012

Today marks the end of my official fact-finding visit to Latvia which began on 14 May. I wish to express my gratitude to the Government of the Republic of Latvia for inviting me to undertake a mission to the country and for its cooperation during the mission. 

The main purpose of my visit to Latvia was to assess, in the spirit of co-operation and dialogue, the impact of the country's external debt burden on the capacity of the Government to realise all human rights, particularly economic, social and cultural rights and the right to development, and to achieve the Millennium Development Goals; as well as to evaluate the impact of the global economic slowdown and the implementation of the EU/IMF stabilisation programme (2008-2011) on the enjoyment of these rights.

I have had very insightful and constructive discussions with Government officials, representatives of the Parliamentary Committees on Human Rights and Public Affairs, and Budget and Finance; officials of public accountability bodies; multilateral agencies based in the country; academics and civil society.

I will present my findings, conclusions and recommendations in a comprehensive report to United Nations Human Rights Council in June next year. Nevertheless, I would like to share some preliminary observations and recommendations concerning the above-mentioned issues with you.

During my visit, I explored the causes and consequences of the financial crisis, as well as the impact of the measures adopted by the Government in response to it. The crisis that severely affected Latvia’s economy between the end of 2008 and 2011 was driven by weakening external demand for Latvian exports, falling asset prices and rapid decline in credit growth. In 2008 and 2009, when many countries fell into recession as a consequence of the global financial crisis and recession, Latvia experienced a profound loss of output – the worst in the world for that period. The collapse of the second largest national bank in the country, Parex, triggered the crisis. The bank was subsequently bailed out by the Government.

In response to the crisis, the Government entered into an agreement with the European Union (EU) and the International Monetary Fund (IMF) to take up a €7,5 billion  loan in exchange for its commitment to implement stringent austerity measures that entailed deep cuts in public spending. The Government`s strategy focused on internal devaluation with pro-cyclical macroeconomic measures entailing substantial wage and price cuts and growth in productivity to enhance competiveness.  While aimed at improving macroeconomic stability and productivity, these measures led to dramatic job losses and overall contraction of the economy. It is worth mentioning that from late 2007 to late 2009, the country lost about 24 per cent of its GDP.

One of the most striking consequences of the crisis and the adoption of austerity measures has been the exponential rise in unemployment and the increased levels of emigration of the economically active population, which has put additional pressure on the already challenging demographic structure of Latvian society.

Indeed, official unemployment rose from 5.3 percent in late 2007 to 20.5 percent in early 2010. Although the economy is recovering and employment has increased by about 70,000 since the beginning of 2010, the unemployment rate remains high at 14.6 percent (or 165,000 people out of a labour force of about 1.1 million according to IMF estimates). However, the official unemployment rate does not appear to measure the full cost of the recession and slow recovery to the country’s labour market. Thus, it has been suggested that if the numbers of those involuntarily working on a part-time basis and those that have given up seeking work, the peak unemployment/under-employment rate is 30.1 percent in 2010, going down to 21.1 percent towards the end of 2011.

Unemployment has not only adversely affected household incomes, it has also contributed to rising poverty with the result that Latvia`s poverty rates remain among the highest in Europe. According to Eurostat data as cited in the IMF Country Report February 2012, severely materially deprived people accounted for 27.4 per cent of the country’s population in 2010. Insufficient income has a direct negative impact on the enjoyment of the rights, inter alia, to adequate housing, food, health care and education. Information available to me suggests that ethnic minorities appear to have been disproportionately affected by the rise in unemployment. The increase of regressive taxes such as VAT and the flat income tax has resulted in persons with low incomes bearing the brunt of the crisis.

In the context of rising unemployment, many chose to leave the country in search of better economic opportunities. It is estimated that net emigration in 2009-2011 amounted to 120,000 people, or 10 percent of the labour force. The education and health sectors were also severely affected by the crisis, with a number of schools and hospitals being shut down or merged, reducing access to essential services.

Prior to the crisis, the Government had embarked on reforms in the health sector to improve its performance. During the crisis, however, the health sector budget decreased 14 percent from 503.73 million Lats in 2009 to 432.78 million Lats in 2010 (compared with a decrease of 8.7 percent in Lithuania and 8 percent in Estonia for the same period). According to information available to me, the budget cuts in the health sector have occasioned difficulties in ensuring the availability of health care.

I wish to commend the Government of Latvia for putting in place a social safety net, with the support of partners such as the EU and the World Bank, in order to mitigate the social impacts of the austerity measures, particularly on the most vulnerable groups, including women, children, pensioners and persons with disabilities. The safety net included a guaranteed minimum income benefit, free health care to those with insufficient income, housing benefits and transportation support.  In addition, the government extended the period for receipt of unemployment benefits from three to nine months, and established a scheme to offer public work to unemployed people for 100 Lats a month, from which around 100,000  people have reportedly benefited. 

The implementation of the stabilisation programme has enabled the Government to substantially reduce its fiscal deficit to a projected 2 percent of GDP this year, stabilise its finances and improve its credit rating. Economic recovery is already underway with a growth rate of 5,5 percent in 2011 and 6.8 percent year-on-year during the first quarter of 2012, one of the highest in the European Union. However Latvia’s GDP remains far below its pre-crisis level. Moreover, Latvia’s external debt has substantially increased partly due to the stabilisation programme loan and it is currently estimated at over 40 percent of GDP. Although well below the Maastricht threshold of 66 percent, in 2014-2015 Latvia will have to repay a large proportion (€1 billion). Given that debt repayment capacity depends to a large extent on income generation and that the revenue base has been diminished by slow economic growth and lower employment, repayment of such an amount presents a challenge – hopefully one that the Government can address without the need for further spending cuts.

I would like to underscore that any measures to promote economic growth and macroeconomic stabilisation should be directed to ensuring that the benefits of growth accrue to the people, especially the poorest and most vulnerable groups. Economic growth should translate into improved living standards for the population.

In the course of my visit, I have been informed of and noted with concern a number of socio-economic problems that require immediate attention, such as high unemployment, increasing poverty levels, high emigration rates among the economically active population, an ageing population, insufficient support to families with a number of children, increasing suicide and trafficking rates and the lack of capital investment to assist in job creation.

Moreover, the social and economic effects of a potential exposure of Latvia’s economy to the Eurozone crisis, through a possible decrease in demand for Latvian exports, should not be disregarded. Amongst EU members, Latvia has one of the highest, income disparities. The lack of employment opportunities and the insufficient availability of adequate health and education services particularly in remote areas, can only but exacerbate this gap.

I note with concern that progress towards the achievement of the Millennium Development Goals is not sufficiently reported in Latvia.

Progress in areas such as poverty reduction, education and health should be a priority for any State, especially when faced with critical circumstances such as high unemployment, reduction of wages and decreased spending on social services. Like many other members of the international community, Latvia has accepted the MDGs. It is therefore important that sufficient attention is paid to the achievement of the Goals.

I call upon the Government to consider adopting a human rights-based approach to policy making to ensure that the design, implementation and monitoring of public policies is consistent with the obligations for the promotion of economic, social and cultural rights that the country has assumed through ratification of core international human rights instruments such as the International Covenant on Economic, Social and Cultural Rights. A rights-based approach, based on internationally accepted norms, offers specific value because it provides a framework for addressing the root causes of poverty: inequality, discrimination, exclusion and disempowerment. Additionally, development cannot be sustainable if human rights are not sufficiently taken into account. Ensuring full participation of all segments of society in decision-making processes, enhancing efforts to reduce inequality, and respecting, promoting and protecting all human rights are critical to sustainable development.

I also wish to call upon the authorities and decision makers engaged in the design and implementation of social and economic policies in Latvia to pay special attention to the needs of vulnerable groups. Special measures need to be adopted to ensure that vulnerable groups are not disproportionately affected by austerity and other economic measures and to protect them from the unintended harmful effects of change and economic growth, providing them with opportunities to improve their living standards.

At the institutional level, an issue of particular concern is the lack of an updated or revised national human rights action plan providing an overarching strategy for the promotion and protection of human rights in Latvia, particularly in the light of the economic challenges the country has faced in recent times. I welcome the initiative currently being undertaken by the Office of the Ombudsman to gain accreditation as a National Human Rights Institution, in full compliance with the Principles relating to the Status of National Institutions for the Promotion and Protection of Human Rights (“the Paris Principles”). In this regard, I encourage the Government to adopt the necessary measures to facilitate this process.

I further call upon the Government to ratify the core international human rights instruments to which Latvia is not yet party, particularly those affording the right of individual petition. People whose rights are under threat or have been infringed must be afforded the latitude to seek redress, including at international level where necessary.

A number of stakeholders have expressed concern regarding the financing of public accountability and oversight bodies, such as the Auditor-General’s Office, the Ombudsman’s Office, the Constitutional and Supreme Courts and the Corruption Prevention and Combating Bureau.  As we have seen, the role of these institutions becomes even more critical in times of economic difficulty and austerity. I therefore encourage the Government of Latvia to consider amending the Law on Budget and Financing of Independent Bodies to ensure that these institutions are financially and institutionally independent. In addition, every effort should be made to ensure that the budgets of these bodies are not reduced in times of austerity so that they are able to perform their functions effectively.

Finally, I wish to make some brief comments concerning the issue of development cooperation. I understand that Latvia has been providing support to a number of countries in transition within the region and that it currently devotes 0.07 percent of GNI to this endeavour. I have also been informed that the Government has been making efforts to get back on track with its ODA target despite the difficulties occasioned by the crisis. This is commendable. It is my sincere hope that with the economy in recovery, the Government will begin thinking about adopting a road map for the achievement of the internationally agreed ODA target of 0.7 percent of GNI.

Thank you.