Protecting pensions against austerity measures in Latvia
Latvian pensioners formed a petition and challenged the constitutionality of Latvia’s Law on State Pension and State Allowance Disbursement – commonly known as the ‘Disbursement Law’ – in the period from 2009 to 2012. The overall economy in Latvia was rapidly declining in 2009, and the Latvian Parliament, with advice from the International Monetary Fund (IMF), sought to respond quickly to the country’s economic crisis. The Disbursement Law was passed in an effort to reduce the State’s budget deficit, whereby the State was to save money by decreasing the amount received by current pensioners by 10% and decreasing the pensions of future pensioners (individuals currently employed) by 70%. Although temporary, the Law did not provide for repayment of the reduced amounts once the economy stabilized. In defending the Law, Parliament pointed to the liabilities it had under loan agreements with international creditors, including the IMF and the European Union.
Citing Article 109 of the Latvian Constitution and Article 9 of the International Covenant on Economic, Social and Cultural Rights, Latvia’s Constitutional Court indeed found the Disbursement Law to be a violation of an individual’s right to an adequate pension and thus fundamental right to social security. Parliament was held as having failed to consider other less restrictive alternatives and to provide an adequate transition period before the new scheme took effect. Likewise, Parliament did not have any plan for future compensation of the reduced pensions. The Court refused to recognize loan conditions as a valid argument in support of the Law’s reduction of pensions, maintaining that conditions imposed by the IMF and other international financial institutions “cannot replace the rights established by the Constitution.” Relying on the UN’s Limburg Principles, the Court noted that minimum essential levels of social protection must be guaranteed by the State irrespective of resources, and that the protection of vulnerable groups, pensioners included, must be prioritized. Parliament was ordered by the Court to draft a plan for the repayment of the reduced pension funds by March 2010.
In this case, the Latvian Constitutional Court asserted the primacy of constitutional and human rights law in making public policy decisions on fiscal allocations. Further, the Court’s declaration that international loan provisions could not trump human rights obligations was a major victory for those seeking greater accountability from multilateral institutions to universal human rights principles.