This November 30 Latvian Institute of International Affairs (LIIA) and Centre for East European Policy Studies (CEEPS) presented their latest research „The Economic Presence of Russia and Belarus in the Baltic States: Risks and Opportunities”. The book, created with the financial support on the part of Soros Foundation – Latvia, is meant for a broader circle of readers – policy makers, entrepreneurs and investors, foreign policy experts, etc. The research was developed with the participation in the aggregate of thirteen researchers, and the political scientist Andris Spruds was the editor of the book. The research is focused on Latvia’s bilateral economic relations with Russia and Belarus. We offer for your attention a summary of conclusions and recommendations defined in the research.

Over the last years, “economization” of Latvia’s foreign policy has brought considerable benefits in the form of growth of export and intensified economic contacts with a number of countries, including Russia and Belarus. The more active cooperation contributes to mutual interdependence, increasing, in its turn, the concern about growth of political risks caused by a large-scale economic presence of particular states in Latvia. Although there still exists some potential for improvement of economic ties with Russia, its volume should not be overestimated. Improvement of political relationship with the neighbouring country would, of course, be an additional signal to both states’ business persons to step up their investments, however, it is the very Latvia’s domestic economic development that would open new windows for expanding the economic relations with Russia.

Although in the aggregate foreign investments, including the Russian ones, are vital for economic growth in Latvia, one should take into account the “character” of Russian investments having an impact on the climate of investments and entrepreneurship in Latvia. In 2011, the Transparency International’s Bribery Index indicated that Chinese and Russian companies were the most active bribe payers operating in the foreign countries. Thereby, the risk still maintains that such practice is “exported” also to Latvia.

Over the last years, Latvia has tried to implement a more or less “pragmatic” foreign policy towards Russia and Belarus. The dispute over Latvia’s position on the issue of the EU’s sanctions against Belarus may be regarded as a litmus paper showing the impact of business groups on Latvia’s foreign policy. Although on separate occasions the EU’s foreign policy has a tendency of double standards, nevertheless the dilemma has not been resolved, which raises questions related to following the EU values by Latvia.

The following recommendations (selected) have been defined within the research for continuing the lucrative economic relations with Russia and Belarus with the simultaneous prevention of corruption, political and security risks:

The Baltic national governments in consultation with societal groups must define the priority economic sectors of long-term strategic importance. Such sectors should be either directly owned or attentively monitored and supervised by the state.

Monopolistic domination in any economic sector must be avoided. This implies strengthening the anti-monopoly authorities and respective regulations. Latvia’s public authorities responsible for the monitoring of foreign investments and combating the economic crimes should improve their coordination both at the local level and with foreign partners.

Transparency in decision-making is a must to avoid the corrupt practices related to resolving the economic issues. Business interest groups and associations are important stakeholders in the formulation of external economic policy, however, control of their operation should be maintained through legislation that regulates lobbyist activities. A close link between politics and economic elites allows bypassing safeguards and restrictions on an institutional level, therefore weakening the role of state institutions in economic interaction and increasing the risk of corruption.

It is imperative to strengthen the particular segments of the Baltic national economies that may contribute to achieving a comparative business advantage at the regional level.

Further “Europeanization” of the Baltic states’ legislation and entrepreneurship practices must take place. In the energy sector, that means introduction of the EU Third Energy Package norms.

There still exists a possibility to expand and deepen the bilateral relations with Russia and Belarus, however, the mutual interdependency, caused by the strengthened economic ties, may lead to a pronounced unilateral dependency on Russia. It is important to define the tilting point where interdependency could be transformed into unilateral dependency.

The “values-interests” dilemma still exists and must be reconciled. Latvia advances beyond the dichotomy of a “constructive freeze” or “pragmatism” in its bilateral relations with Russia and Belarus. This dilemma hampers the long-term planning of the state foreign policy.

Full text of the research including conclusions and recommendations is available here.