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Latvia should raise basic pension to reduce pensioner poverty

MD Staff

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Latvia should strengthen old-age safety nets and raise the basic state pension in order to reduce pensioner poverty, especially among women, and address the challenge of a fast declining population, according to a new OECD report.

The OECD Review of the Pension System in Latvia highlights the challenges facing the pension system. Latvia’s working-age population (people aged between 20 and 64 years) is expected to fall by about 20% over the next two decades, due to low fertility rates, increasing life expectancy and high emigration. The pension system is designed to automatically adapt to demographic trends. While this will secure the system’s financial stability over time, it will also reduce pension benefits.

Already today, Latvia’s old-age poverty rate is the second-highest in the OECD, after Korea: more than 25% of people aged 65 and older have an income below the relative poverty line. Older women are especially vulnerable: more than one-third of females over 75 live in poverty and the notional defined contribution (NDC) scheme does not offer survivor benefits for spouses.

At 64 euros per month in 2017, the basic pension represents 8% of gross average earnings against the OECD average of 19% and has not increased in nominal terms for more than 10 years. There is substantial room to increase the level of old-age safety nets, according to the report. In order to avoid a negative impact on work incentives, the minimum pension should be set so that each year of contribution increases the benefit.

The normal retirement age is 63 years and 3 months for both men and women and will reach 65 in 2025. As benefit levels decline when life expectancy increases, linking the future retirement age to life expectancy gains will help prevent too many people retiring with too low entitlements.

The Latvian NDC scheme meets its objective of delivering pension benefits that depend on contributions made during the working life in a financially sustainable way. However, the current practice of transferring funded defined contribution (FDC) assets to the NDC scheme to compute regular pension payments, the so-called annuities, should be eliminated as the two schemes are based on different rules and principles.

The design of the mandatory and voluntary funded pension schemes should be improved. Introducing a default investment strategy so that the amount of risky assets invested falls as people get closer to retirement would help.

Administrative fees charged by private financial service providers for the management of the FDC scheme are high in international comparison. In part, this may reflect the relatively recent introduction of the system, but it is mostly due to a lack of competition between pension providers. Recent reforms introduced in early 2018 to rein in costs go in the right direction but require strong monitoring to be effective.

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Eastern Europe

What Will Bring Generational Change to Georgia?

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Those who study modern Georgia often focus on large issues such as the country’s relations with Russia, aspirations to join NATO and the EU, or simply internal political processes.

What remains largely undiscussed and possibly with far reaching effects on the future of Georgia, is the generational change.

Georgia is amidst a generational change. True, the occasional protests which have taken place across Georgia throughout 2019 often featured youngsters of various political affiliation, still the critical mass of large-scale demonstrations would be filled by much older generations (born in the 1970s and 1980s). However, this is bound to change in the coming few years. Those born after the collapse of the Soviet Union will approximately, by 2024, dominate the street protests, whether small or large.

They will be increasingly opposition-minded, protesting even a small scale mistake by any government ruling Georgia. This is not to say that they will be linked to any concrete party; their actions will be more characterized by traditional activism so common in the West.

Any future Georgian government will experience difficulties staving off the demonstrations, which in turn will lead to much higher responsibilities from political forces. This will also be a generation which will not remember the 1990s or United National Movement’s rule (2003-2012), but will be mainly forged in 2012-2020/22.

On a much higher level, the 2020s will be also characterized by gradual changes in Georgia’s ruling class (even if we presume it to be a very divided one). Those born in the 1980s and 1990s will constitute the absolute majority of low- and mid-level positions in government and non-governmental organizations. This will have a major impact on how the country will be run. It is likely that more attention will be paid to establishing a more effective administration, improving the level of education, economy, and the military. The new Georgian elite, predominantly born in a post-Soviet country, will also be more amenable to public demands.

Those generational changes will also affect major Georgian parties. Members aged just under 30 will eventually strive to gain bigger roles inside the parties. However, since the party leaderships will be unwilling to cede their primary roles, there is a big likelihood we will see the creation of a number of new splinter parties. Thus, one of the major certainties for the 2020s is a sharp increase in pro-Western parties.

Current opposition forces are also likely to lose whatever popularity they enjoy, as younger generations will adhere to newer, predominantly pro-Western, political entities.

Major influence will be put on the Georgian political elite, which I discussed in earlier pieces. Though currently there is an extremely divided political elite in the country, in the 2020s there will be a gradual increase in coordination between different new political groups on basic foreign and internal state interests. This will be a major rupture with the developments Georgia has experienced since the 1990s.

The generational change will also have a gradual but nevertheless big geopolitical influence. One of the features will be a steep decline in the knowledge of the Russian language and general attraction the Russian culture has had for older generations in Georgia. This will mean that pro-Russian forces will lose even the slightest attraction they currently enjoy in Georgia.

These generational changes are directly tied to the regional geopolitics. Though Moscow influences Tbilisi through its military presence in Georgia’s Abkhazia and Tskhinvali regions, on the ground the balance is shifting significantly and not in Russia’s favor. Eventually, it all will come down to what culture people are more attracted to. It is based on this that grand strategic shifts or allegiances to alliances are made.

Author’s note: first published in Georgia Today

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Eastern Europe

Lithuanians fight for silence

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The Ministry of Defence of Denmark has made an important decision supporting human rights of Danish citizens.

Thus, Denmark’s new fleet of F-35s, which are to replace the F-16s currently in use, will arrive at Skrydstrup air base in South Jutland starting in 2023. When the new air force is finally ready, far more neighbours will be bothered by the noise exceeding limit values, calculations by the Danish Defence Ministry show. The 100 worst-affected homes will have to suffer noise levels of over 100 decibels, which is comparable to a rock concert or a busy motorway.

The noise pollution from F-35s is projected to exceed that of the F-16s, though noise pollution from F-16 also bother locals. Discontent of citizens reduced their confidence not only in the Ministry of Defence but in their current government and NATO as well.

Thus decided to compensate the victims.This step has improved the image of the armed forces and showed the population the care that the Ministry of Defense shows to a residents of the country.

A similar situation has developed in Lithuania. Lithuanian citizens demand compensation from the Ministry of National Defense due to high noise level made by fighter flights from Šiauliai airbase as part of NATO’s Baltic Air Policing.

Lithuania is a NATO member state and contribute to the collective defence of the Alliance. Thus, Šiauliai airbase hosts fighter jets that conduct missions of the NATO’s Baltic Air Policing.
Citizens also initiated on-line petitions in order to attract supporters and demonstrate their strong will to fight violation of human rights in Lithuania.

According to peticijos.lt, the petition was viewed more than 5 thousand times. This shows great interest of Lithuanian society in the subject.At the same time existing control over any political activity, as well as silence of current government and Ministry of National Defence don’t allow people openly support such idea. All websites with petitions demand the provision of personal data. Nobody wants to be punished and executed.

The lack of response is not a very good position of the Lithuanian Ministry of Defence in case Lithuania wants to prove the existence of democracy. Denmark is a prime example of a democratic society caring for its people.

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Eastern Europe

Georgia Returns to the Old New Silk Road

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Georgia has historically been at the edge of empires. This has been both an asset and a hindrance to the development of the country. Hindrance because Georgia’s geography requires major investments to override its mountains, gorges and rivers. An asset because Georgia’s location allowed the country from time to time to position itself as a major transit territory between Europe and the Central Asia, and China further away.

This geographic paradigm has been well in play in shaping Georgia’s geopolitical position even since the breakup of the Soviet Union in 1991 and the rise of modern technologies. Thereafter, Georgia has been playing a rebalancing game by turning to other regional powers to counter the resurgent Russia. Turkey, Azerbaijan, Iran (partly) and bigger players such as the EU and the US are those which have their own interest in the South Caucasus. However, over the past several years yet another power, China, with its still evolving Belt and Road Initiative (BRI), has been slowly emerging in the South Caucasus.

This how a new Silk Road concept gradually emerged at the borders of Georgia. In fact, a closer look at historical sources from the ancient, medieval or even 15th-19th cc. history of Georgia shows an unchanged pattern of major trade routes running to the south, west, east and north of Georgia. Those routes were usually connected to outer Middle East, Central Asia, and the Russian hinterland.

Only rarely did the routes include parts of the Georgian land and, when it happened, it lasted for merely a short period of time as geography precluded transit through Georgia: the Caucasus Mountains and seas constrained movement, while general geographic knowledge for centuries remained limited.

It was only in the 11th-12th cc. that Georgian kings, David IV, Giorgi III and Queen Tamar, spent decades of their rule trying to gain control over neighboring territories with the goal to control the famous Silk Roads. Since, foreign invasions (Mongols, Ottomans, Persians, Russians) have largely prevented Georgia from playing a major transit role for transcontinental trade.

This lasted until the break-up of the Soviet Union. After 1991, Georgia has returned to its positioning between the Black and Caspian seas, between Central Asia and Eastern Europe. Major roads, pipelines and railway lines go through Georgian territory. Moreover, major works are being done to expand and build existing and new Georgian ports on the Black Sea with the potential to transform Georgia into a sea trade hub.

A good representation of Georgia’s rising position on the Silk Road was a major event held in Tbilisi on October 22-23 when up to 2000 politicians, potential investors from all over the world, visited the Georgian capital. The event was held for the third time since 2015 and attracted due attention. In total, 300 different meetings were held during the event.

The hosting of the event underscores how Georgia has recently upped its historical role as a regional hub connecting Europe and Asia. On the map, it is in fact the shortest route between China and Europe. There is a revitalization of the ancient Silk Road taking place in Georgia. This could in turn make the country an increasingly attractive destination for foreign investment. Indeed, the regional context also helps Tbilisi to position itself, as Georgia has Free Trade Agreements with Turkey, the CIS countries, the EFTA and China and a DCFTA with the European Union, comprising a 2.3 billion consumer market.

Thus, from a historical perspective, the modern Silk Road concept emanating from China arguably represents the biggest opportunity Georgia has had since the dissolution of the unified Georgian monarchy in 1490 when major roads criss-crossed the Georgian territory. In the future, when/if successive Georgian governments continue to carry out large infrastructural projects (roads, railways, sea ports), Tbilisi will be able to use those modern ‘Silk Roads’ to its geopolitical benefit, namely, gain bigger security guarantees from various global and regional powers to uphold its territorial integrity.

Author’s note: First published in Georgia Today

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