By Patrick Lannin
RIGA, June 9 (Reuters) - The unemployment office on a downtown Riga street is packed: people are stuck in a queue in the cramped office and the tickets given to people to wait to register as jobless have run out.
Latvia is the European Union country worst hit by the global downturn with the economy set to shrink 20 percent this year. Its woes have worried financial markets due to fears it may have to devalue its currency.
At the job office, where the sharp end of the crisis can be seen, Oleg Kobstev, 37, emerges after four hours of waiting. He lost his job at the start of the month as a metal worker.
"I came at seven in the morning," he said, standing outside the grey, squat building. Even at that hour the queue was long.
The people at the office were a mixture of Latvians and Russian-speakers and were of all ages.
"It sucks," said Kobstev, who was laid off after the company he worked for had a fall in orders.
Latvia's jobless rate, which just one year ago was running at 4.8 percent, hit 11.3 percent in May this year, a rise to 126,595 people from 52,213 people.
Latvia's crisis came after a consumer boom driven by cheap credit and when the money ran dry in the global credit crunch, the economy nosedived. The government had to instigate spending cuts to secure a 7.5 billion euro rescue from the International Monetary Fund and the EU.
Fellow Baltic states Estonia and Lithuania are also deep in recession, but Latvia's distress is much worse as its economic overshoot in the boom times was more extreme.
"We only have money to eat and money for the apartment, there is nothing left over. People used to want nannies and office cleaners, I earned money that way," said Aida Radionova, 28, adding many people could no longer afford nannies.
In January, anger at the government due to the budget cuts turned into the worst post-Soviet riots the small nation of 2.3 million people has seen. Local and European parliament elections at the weekend saw the opposition do well at the expense of top government parties.
The economic decline first hit the property, retail and car market and then spread. Other governments and investors have begun to cast a worried eye, fearing Latvia will be forced to devalue, causing a chain reaction in other markets.
A devaluation would also hurt the tens of thousands of Latvians who took loans in euros during the credit boom. Such repayments would grow as they cost more in the local lat currency if there was a devaluation, causing more defaults.
PROPERTY COLLAPSE
One of the signs of the crisis has been the property market collapse. One joke going around is about a new chain of shops, "iznoma" (to let), referring to the many empty retail premises.
In the boom, when Nordic banks pumped cheap money into the economy to create eastern Europe's highest level of private sector indebtedness, property prices rose at the fastest rate in the world. Now prices are falling equally quickly and many new homes and offices stand empty or only half filled.
The brightly-named Aurora Residence development of apartments, in a Riga suburb, overlooking a small lake and near two parks, is one such.
The website of the multi-storey building still works, but the phone number advertised has been cut off. Like elsewhere, the fall in prices created finance problems for developer Ranga IV and building stopped after phase one was finished.
"The real estate market has collapsed completely in Latvia," said Ranga IV director Aidas Suopys in emailed comments. He blamed the banks for withdrawing financing.
"The future is indeed bleak, both for local residents and any entrepreneurs prepared to take a dare, as such credit crunches are potentially repeatable in the future," he said.
AUTUMN FEARS
The roots of Latvia's troubles came after its entry into the European Union in 2004. Banks from Sweden, such as Swedbank, SEB , Nordea along with Norway's DNB Nord, aggressively entered the market.
"You had a consumption, property and construction boom which led to (economic) overheating, something that was addressed far too late by policy makers," said Morten Hansen, economics professor at the Stockholm School of Economics in Riga.
With the government committed to further spending cuts as part of the IMF and EU rescue package one former prime minister warned last month in a newspaper interview that autumn would be tough as unemployment benefits would end for 120,000 people.
They would then be forced to take benefits as low as 30 lats ($58.73) a month from local authorities, he said.
The future could also be bleak for teachers as the government has said it will have to sack thousands due to lack of cash. Worries people might not be able to cope with high heating bills in the tough winter have also arisen.
Prime Minister Valdis Dombrovskis and Finance Minister Einars Repse remain convinced further budget cuts and loans from lenders are the right way and have rejected a devaluation, which some economists have said would help ease the downturn.
"If we do not do that (cut the budget and get loans) then our current problems might seem like an easy life at the height of the party," Repse told Latvian public radio on Monday. (Editing by Matthew Jones)