1938: Latvia

The replacement of martial law by strict civil laws early in March, apparently affected the form rather than the substance of President Ulmanis's dictatorship which has existed since May 15, 1934. In place of Parliament, a government-controlled State Economic Council was created, consisting of representatives of commerce, industry, agriculture, crafts, and labor. The new laws prohibited political parties and made the existence of all other associations subject to official approval; abolished strikes and lockouts; and empowered the Government to forbid public gatherings and to maintain a strict control of the press. At the same time the powers of the war hero, Gen. Janis Balodis, Vice President of the republic and Minister of War, were increased by his appointment as Vice Premier in addition to his other posts.

The increased international tension led the states of the Baltic Entente — Latvia, Lithuania, and Estonia — to draw more definitely away from the rival groups of European powers and instead to lay plans for the maintenance of collective neutrality in case of a general war. At a meeting in Riga early in June, the three powers decided to keep out of 'ideological blocs' if possible. In November, their representatives drafted joint neutrality rules which were to be put into force in case of war abroad.

Latvia's economy showed few marks of the world business recession during the year. The Government's vigorous economic policies, including a public works program, created a scarcity of labor, and the heavy grain harvest required the importation of a considerable number of agricultural workers. Foreign trade fell below the mark set in 1937. A decline in the value of exports, caused largely by a slump in the world market for timber, combined with large imports due to the building program, resulted in an increase in the surplus of imports over exports.