The collapse started a month ago. On Nov. 8, the Latvian government announced it was taking a controlling 51 percent interest in the market-leading Parex Bank, setting off a chain of events that has now drawn Latvia deep into financial crisis.

Until then, the prevailing view of the government was that the international financial crisis that had set capitalism’s finest institutions shaking would do little harm to Latvia, which was protected by its isolation and its hitherto exemplary liberal economic management.

The month since has plunged Latvia into the abyss. The government’s involvement in Parex has deepened to around 85 percent and it is desperately looking for buyers as investors withdraw money. But other prognoses for the economy have also worsened. The budget adopted just a few months ago had already forecast a drop in the Gross Domestic Product of around 1 percent, in line with the prevailing world economic downturn in 2008. But that has been radically revised and now is likely to be nearer 5 percent, signalling a damaging economic recession and a sharp decline in government revenue. The forecast budget deficit has doubled from 1.5 to 3 percent, endangering prospects of Latvia joining the euro zone in the coming few years.

A series of backdowns and reversals on the part of Finance Minister Atis Slakteris has made ludicrous his earlier confident assertions that Latvia, unlike some other countries (such as Iceland and Hungary), would need no help from the International Monetary Fund or other international financial institutions. In mid-November the government admitted it may need to borrow around EUR 3 billion. Now the sum mentioned is EUR 5 billion, although some analysts say around EUR 7 billion is the likely figure.

The IMF or any other international benefactor will impose strict conditions on government spending in the form of a stabilisation plan. Here is the really bad news: in Prime Minister Ivars Godmanis’ address to the Saeima last week he forecast a cut in government spending of around LVL 600 million—around 11 percent of all expenditures—and predicted that it would not be possible to avoid education, health, social services and other large areas of government spending.

The politics of this will be intense. In September a huge demonstration of teachers, health workers, police, fire officers, transport workers and others in the public sector called for a halt to their relatively declining wages and a guarantee of better conditions. This widely supported action was given extra fillip by Government Auditor Inguna Sudraba, who revealed systematic abuse of payment guidelines for government bureaucrats: a system of bonuses (prēmijas) has supplemented already generous salaries. In the Transport Ministry, run by chief government head–kicker and tycoon Ainārs Šlesers, officials had had 14 bonus payments in one year! The train, tram, bus and trolley bus drivers and maintenance crews had on the other hand received no such largesse.

To some extent, the scenario in Latvia reflects that in so many other countries still trying to make sense of a vicious global economic downturn, and trying to restore confidence in financial institutions. Certainly the situation is far worse in Russia, although denied by its government. It was partly the flow of Russian money that had made Latvian banks rich, employing the extraordinary slogan “We are closer than Switzerland”!

As elsewhere, property prices have also plunged steeply in Latvia, threatening all those who had been banking, literally, on continually growing prices to cover their loans. This may bring some sanity to Latvia’s overheated property prices (why does the price of a property in Rīga approach that of one in Paris or Berlin?), but along the way will bankrupt many.

Latvia showed it was capable of its own financial crisis nuances: in a move that caught the attention of the international press, Latvian security police brought in for questioning two people—a musician and a university economics lecturer—for spreading false information about the state of Latvian financial institutions. According to law, the deliberate spreading of such false information is illegal. It is a provision that had been introduced in a number of Eastern European countries to counter malicious disinformation that had resulted in several runs on banks in still fragile post-Communist economies in the 1990s. The musician made a throwaway comment about the banks during a concert. The economics lecturer’s view that people should not put money in banks and or keep it in the national currency, the lat, was reproduced in a Ventspils newspaper. Ironically, the actions of the security police made his views known nationally and even internationally: the American Wall Street Journal headlined this as “How to Combat a Banking Crisis: First, Round Up the Pessimists.” Despite the air of Keystone Kops, the issue of confidence in the financial sector remains.

The economic meltdown represents the final catastrophe in a year of great difficulty for Godmanis’ coalition government, criticised on all fronts for its handling of a number of economic and social issues, as Godmanis tried desperately to distance himself from the politics of the previous failed Prime Minister Aigars Kalvītis. As well as the growing dissatisfaction of public sector workers, the government narrowly defeated a popular referendum that would have allowed the dissolution of the Saeima through a referendum process. Relations with President Valdis Zatlers—originally seen as a badly chosen puppet of the coalition parties—have grown increasingly tense as he criticises the government both for lack of economic planning and for failure to move on a number of constitutional issues that have long debilitated Latvian politics. The failures of the year have also brought the leading People’s Party (Tautas partija) to its lowest point ever, a recent poll showing only 2.9 percent of the electorate would vote for it now. 

Finally, spare a moment’s thought for Godmanis. He is a significant figure in Latvian politics and was the prime minister at the most difficult time in 1990-1993 when he oversaw the end of Soviet rule in Latvia. He also oversaw the first huge economic downturn of the time that brought the old stagnant Soviet economy into a period of huge inflation, bankruptcy of enterprises, job losses and general turmoil. Somehow the government did get Latvia out of the Soviet Union and even set the basis for its future stable currency, and had the peculiar distinction of being the only government in Eastern Europe to survive a full term in that period. Godmanis could go down as presiding over both major economic disasters of recent history in Latvia—neither of them of his own making.

Sept. 26 brought a smile to many Latvians as the long wait for the new iPhone 3G was finally over. At several LMT (Latvijas Mobilais Telefons) and Capital stores in the centre of Rīga, queues were up to 10 deep, but nothing like the frenzy experienced in the United States several months earlier. In some locations users had to wait up to two hours while staff were still learning the new in-store activation process, but four weeks later I was able to waltz straight into the LMT store near the corner of Brīvības and Ģertrūdes and get my new phone activated in less than 10 minutes.

Depending upon which of the three iStyle plans you choose, you can get yourself an iPhone for as little as LVL 1, but be prepared for a hefty LVL 60 per month for the next 24 months. This option, also called iStyle 3, includes 1,000 minutes, 1,000 text messages and unlimited data every month.

On the other end of the scale, if you pay around LVL 110 up front for the phone, then you pay only LVL 20 per month for 100 minutes, 100 messages and up to 100Mb of data for the iStyle 1 plan.

Another less known option for business customers (or for that fact anyone who has at least three mobile services on the one account) is that for a slightly higher up-front fee you can keep your existing Formula 8, 18 or 28 plan and add the HSDPA 5 (30Mb for LVL 5) or HSDPA 15 (200Mb for LVL 15) data plans. If you are a light user, for example Formula 8 and HSDPA 5, this becomes quite an affordable solution—LVL 13 per month.

The iPhone 3G has the further advantage that it will automatically seek and connect to any open WiFi services before switching to the more costly 3G or Edge service. This is good news especially for Estonia, where free public WiFi spots seems to be the norm. If you have broadband Internet at home, make sure to install a wireless router (no more than LVL 40) so that you can enjoy free and unlimited Internet connections via your iPhone 3G.

Be careful when travelling outside of Latvia, because none of the above mentioned plans include data calls overseas and costs could vary greatly from LVL 2 up to a whopping LVL 10 per 1Mb depending on the selected overseas carrier. If you don’t like the idea of locking yourself into a 24-month contract with LMT, then on your next visit to Italy you can grab an unlocked iPhone 3G for about EUR 400-500 that can then be used with any of the mobile operators in Latvia or the rest of the world for that matter.

About the same time as the iPhone 3G appeared in the Baltics, Apple released the iPhone 2.1 software update that for the first time allowed the easy input of Latvian letters. Up until then it was possible to view Latvian text (all of the current iPod models support the display of Unicode text), but there was no way of entering the special letters directly into these devices.

To enable Latvian text input go to Settings -> General -> International -> Keyboards and switch on the Latvian option. Estonian and Lithuanian languages are available as well. Using the iPhone “keyboard” hold down the letter key you wish to modify. A popup menu will appear showing the possible modified symbols. For example, if you want “ā” hold down the “a” key and choose “ā” from the popup menu. Latvian language purists may be disappointed since neither “ō” (o-macron) or “ŗ” (palatalised-r) are offered as modified letters, however both will display correctly. Surprisingly this feature of inputting Latvian text is not documented anywhere, not in the translated iPhone documentation, not on the LMT Web site.

The software update also offers “Riga, Latvia”, “Vilnius, Lithuania” and “Tallinn, Estonia” as a time zone option. Previously we had to settle with the closest city in the same time zone such as “Helsinki, Finland.”

The iPhone 2.2 software update released last month introduced even more Baltic friendly features. In the Settings -> General -> International -> Region Format, all three Baltic languages have been added to allow the display of localised date formats. Applications such as Calendar, Mail and Weather will now show the day and month names in Latvian. A few glitches, however, still need to be addressed. On the welcome screen the year is missing (for example, “otrdiena,.gada 2. decembris”) and the short form date displayed in Mail messages follows the U.S. format YY.D.MM rather than YY.M.D. Another much requested feature was the ability to switch off auto-correction, which proved to be a nuisance when texting and sending e-mail in any of the Baltic languages because of the lack of dictionary and spellchecking support.

Although Apple is gradually introducing more Baltic support with every new software update, for those who can’t wait for a complete Latvian user interface there is an unofficial Latvian localisation produced by Andris Ludriks and available on his Sadzīviskas figņas blog. However, to install the “LV interface pack 2.0” software requires “jailbreaking” your telephone, a process that is not supported by Apple and that could result in data loss.

The iPhone excels as a Web browsing device as well. Tilt the screen for portrait or landscape mode, double tap on images or text blocks to zoom in or use finger actions—pinching together, spreading apart or a simple swipe—to easily navigate through sections of your favourite online Latvian newspaper. No wonder Google is reporting that the iPhone generates 50 times more Web based search requests than any other mobile device. Some Latvian companies with a strong online presence haven’t wasted any time providing iPhone friendly versions of their Web sites, including directory and information service 1188, Swedbank (formerly Hansabank) and social network draugiem.lv. Draugiem.lv has been bold enough to charge users 50 santīms per week for this privilege, which then appears on their next mobile phone bill.

The GPS features also seem to work well. Using the Google Maps application, the iPhone was able to determine my location in central Rīga accurate to within a block. As you move out of Rīga a lot of detail is lost, but using the satellite view and the real time tracking blip on the screen we were able to navigate to a fairly remote destination on the banks of the Bullupe river.

On the application front development has been slower since the iTunes Store is not yet available for any of the Baltic countries. The iTunes Store is the mechanism for distributing third party applications, but you need to provide a registered credit card from a supported country (the U.S., Canada, Australia and others). This hasn’t deterred a Lithuanian software developer, Marius Kazemekaitis, from getting his balsas.lt Lithuanian news reader published among the many thousands of applications now available from the AppStore. For those lucky enough to get themselves an iTunes store account you can also purchase and download Latvian music to your iPhone. The selection is not large, but you can find artists such Iļģi, Prāta Vētra, Pēteris Vasks, Tribes of the City, The Hobos and others. For Latvian videos and films your only option at the moment is to get hold of the original DVD and rip to MP4 format. Our 5-year-old son regularly watches Gardēdis, Vāģi, Ledus laikmets and Avārijas brigāde on the 3.5-inch (9cm) screen.

With Latvian language support, reasonably priced LMT data plans and one of the best user interfaces on the planet, the iPhone 3G is sure to have an impact on the mobile phone market in the Baltics as well.