Analytics, Crisis, Economics, EU – Baltic States, Financial Services, Investments, Latvia

''Latvia underwent one of the world’s harshest austerity programs – and deepest recessions – without devaluing its currency, mostly without riots, and has already returned to growth,'' the article points out.

''The country’s fortitude has been cited as a model for disgruntled Greeks. However, Latvia is only now understanding the long-term costs – 10% of Latvians have left the country since 2000, with half of those in the three years of austerity,'' the FT article goes on to say.

The newspaper points out that provisional census figures this year found only 1.9 million people in a country that officially thought it had 2.2 million.

Nils Muiznieks, a University of Latvia social scientist, told the newspaper that the country largely escaped protests, even as its economy slumped faster than in depression-era America, thanks to ''weak unions and emigration''.

On the other hand, Martins Bondars, a former bank chief executive, jokes that ''Greeks demonstrate on the streets. Latvians buy a one-way ticket on airBaltic.

''In return for an international bail-out worth one-third of gross domestic product, Latvia pioneered the kind of ''internal'' devaluation Greece is now attempting. It doggedly kept its currency pegged to the euro to preserve hopes of eventually joining. Instead, it slashed wages and public spending to regain competitiveness. By next month, Latvia will have achieved a fiscal adjustment of 16% of GDP in three years, the same now demanded of Greece,'' the article goes on to say.

However, FT points out that statistics scarcely capture the human scale of what resulted. ''With austerity launched during the 2009 global recession, Latvia’s economy shrank, in total, by a quarter. Unemployment more than tripled from 2007 to 2010, hitting 21%. The number of civil servants was cut by 30%; public sector salaries fell 40%. Consumption collapsed,'' the newspaper explains.

''When we heard of Greeks protesting when salary cuts there were far less than in Latvia, many people said: ''They don’t know what hardship means,'' Janis Veckracis, who lost his job as a civil service translator in 2009, told the newspaper.

The FT reminds that Latvia's austerity effort followed an exceptional boom in which the economy grew by a third in three years, and salaries doubled. The economic crash essentially took it back to 2005.

Prime Minister Valdis Dombrovskis (Unity) told the newspaper that internal devaluation was the only option. To devalue the lats, Dombrovskis says, would have provided only a limited boost to exports since to manufacture them Latvia must import energy and materials – whose prices would have risen.

''Some 85% of our loans were in euros, so devalution would have created huge problems for the banking sector, and for many people and businesses,'' Dombrovskis added.

The FT also points out that drowning in debt, probably just as many Latvians would have emigrated after a currency devaluation, but the exodus that did occur raises fears for the future.

Mihails Hazans, a migration expert at the University of Latvia, says Latvians were leaving to work abroad even in the boom years. But many were single family members, leaving temporarily. From 2004 to 2008, net emigration averaged 16,000 a year.

After austerity kicked in, it mushroomed to 40,000 a year, comprising whole families, many young and educated – and most expressing little intention of coming back.

The same number has left in 2011, even though the economy will grow by 4.5% this year and joblessness is falling, the article points out.

''Well-educated people used to have a clear path, with a stable job, and the future looked fine,'' says Hazans. ''Suddenly they understood their future is neither fine nor certain.''

He warns the government faces a challenge to ensure there are enough working-age people to fund the pension system, and to provide a labor force for new investments.