RIGA: On this 10^thanniversary of the U.S. triggered global crisis, spare a thought for lightly populated Latvia, the Baltic nation in Europe’s far northeast.

Over-confident from a get rich quick, multi-year property boom, the global crisis struck Latvia with unanticipated force. Citizens and government were ill prepared for the disaster. Economic activity slowed at once. Swedish banks that dominated local credit markets closed the lending spigots that only months earlier were wide open. House prices quickly collapsed. Dodgy business closed first, then even those who thought themselves prudent. Banks called in loans as they struggled to stay solvent. Borrowers who couldn’t keep current on mortgages were forced into bankruptcy.

Soon the economy was in free fall. By the end of 2009  g.d.p. had fallen 16%, the steepest decline anywhere in the E.U.

The crisis was equally severe in government. The exchange rate that was pegged to the euro came under relentless attack. The I.M.F. was called in for advice and an emergency line of credit. Determined to hold the peg so it could join the euro currency zone, Riga’s policy makers chose “internal devaluation,” slashing public sector wages and employment by 20 to 30% to close the fiscal deficit, measures that went beyond what Greece would later undertake.  Unemployment soared to 20%.

In the end Latvia held the line but at a terrific cost.  The hemorrhaging of the country’s best and brightest to Britain and Ireland gathered force. Latvia’s population decline became Europe’s highest.  A population that totaled 2.3 million in 2000 is down to 1.9 million, a 17% drop.

By 2011 growth had resumed and by 2012 g.d.p. grew 5%, among the best in the E.U. This year growth will be 4%, well above the E.U. average. The I.M.F. calls Latvia’s adjustment “an overwhelming success.”

But for ordinary Latvian citizens it’s been a hellish and dizzying transition.

Rivo Valders calls himself typical.  He’s a 47-year-old entrepreneur and math whiz who prior to the crisis managed a Japanese firm’s Latvian operations. When the economic tidal wave hit the Japanese company split, leaving country manager Valders holding the bag of big debts and no job. He lost his car and house. His wife filed for divorce. He was forced into bankruptcy.

Rivo Valders

Valders found a new wife and credits her with restoring his battered self-confidence.  She read aloud self-help books in which tech winners told how they had bounced back from hard times.

Today Valders is resilient and again optimistic. He drives a cab, delighted that he is earning double the €650 per month average Latvian wage. “I can set my own hours,” he says, “and spend time with my two children.”

A visitor to Riga, returning after a five-year absence, marvels at the city’s sparkle. City cafes are crowded with tourists. Two big cruise ships are moored at the Daugava River docks.  But bustling Riga—with nearly a third of Latvia’s population– is an island of prosperity in an impoverished sea. People in rural areas earn far less than the national average.

Like neighboring Lithuania to the south Latvia faces a demographic challenge. How can it stem the population decline and lure home some of those living abroad who are earning two to five times what they would in Latvia?

Alas, for that there is no easy answer. #