SCENSETTER FOR VISIT OF SECRETARY OF LABOR ELAINE CHAO

UNCLAS RIGA 000799 SIPDIS SIPDIS FOR SECRETARY CHAO FROM AMBASSADOR BAILEY E.O. 12958: N/A TAGS: ELAB PGOV PREL OVIP CHAO ELAINE LG SUBJECT: SCENSETTER FOR VISIT OF SECRETARY OF LABOR ELAINE CHAO ¶1. Madam Secretary, we are extremely honored that you will visit Riga October 10 - 13. Latvia today is a very different place than it was when you helped establish the Peace Corps program here after Latvia regained it's independence in 1991. Over two years into NATO and European Union membership, Latvia has emerged as a significant international player, despite its modest population and resource base. Per capita, it is one of the largest contributors to international military operations, with 120 soldiers in Iraq and 30 in Afghanistan, while also serving in Kosovo. Latvia stands out as a successful post-Soviet transition society and it has become a respected voice in the international media. Strong memories of occupation and oppression strengthen Latvia's resolve to reach out to countries near and far struggling to move beyond authoritarian politics and state-dominated economies. Latvia remains one of the fastest growing economies in the European Union. Its geographic position offers great potential as a stepping-stone for U.S. exports and investors interested not only in the Baltic region itself, but in the Russian, other Eastern European, and Scandinavian markets. Latvia's support for pro-market, pro-free trade policies is important to the U.S., especially in European and international organizations. These political and economic trends provide new opportunities to work with Latvia in projecting support for freedom, democracy, and market-based prosperity. ¶2. Latvia's leaders are strong partners and true friends of the United States. Riga's hosting of the NATO summit in November of this year is a true testament to the positive view of President Vaira Vike-Freiberga within the alliance, and the result of her tenacity in her home country. She is currently heavily focused on her race for Secretary General of the United Nations, where she is fighting an entrenched view that it is an Asian country's "turn" for the job. Her term expires in July 2007 and the parliament will choose her successor sometime before that. Prime Minister Aigars Kalvitis leads a minority government that will officially be in caretaker mode when you arrive, following parliamentary elections October 7. One of his personal priorities is ensuring that Latvia's young and educated stay here and contribute to Latvia's economy rather than seeking jobs elsewhere. The other ministers who will join you for lunch are all ones with whom I work closely on a number of issues. Speaker of Parliament Ingrida Udre is very supportive of our initiatives to develop greater US - Latvia ties through public-private partnerships, including through visits by the HUMANA health care foundation and Ronald McDonald House Charities (which resulted in a decision to open a RMHC chapter in Latvia). ¶3. Latvia will hold parliamentary elections on October 7, which will select a new parliament (Saeima) that will begin work in November. We can't make any exact predictions at this point, but we don't think the elections will result in any major shift in policy, especially towards the United States. Latvia's fractured political landscape - 19 parties will run in the elections with between 5 and 8 likely to win seats in parliament - means that a coalition of 3 or 4 parties will be required to form government. Coalition formation and jockeying for their own roles in the new government will be foremost on the minds of all the political leaders you meet and will likely be the dominant news stories of the day as well. ¶4. Since joining the EU, Latvia has seen dramatic shifts in its labor force that the Latvians will want to discuss with you. Latvian workers have taken advantage of the free movement of labor provided for by the EU. The official rate of registered unemployment in May 2006 was 7.0 percent, although it is significantly higher in rural areas. The largest challenge that employers face since Latvia joined the EU is the flow of workers to other EU countries -- mainly Ireland and the UK. Latvian agencies estimate that 30,000 to 50,000 Latvians have gone elsewhere since May 2004 for work, but the actual number is likely much higher than that. Irish statistics show more than 30,000 Latvians working in Ireland alone. Nursing, police, and construction are three of the sectors hardest hit by this out flow of labor. Adapting the workforce to the 21st century through education and training is something I hope you can talk about in your remarks here. ¶5. Latvia's explosive growth, 10.2 percent in 2005, has been matched with high inflation, 6.7 percent last year. Wage growth far outstrips gains in productivity as Latvian employers try to retain workers. Latvia's low corporate and capital gains tax policies have also helped to fuel growth and the government's budget is in surplus. But the ease of access to cheap credit, fueled in large part by a real estate boom, and the 4.2 million Euros in EU support funds Latvia will receive over the next seven years will continue the inflationary pressures in the economy and continue to make Latvia's accession to the Euro a goal for the somewhat distant future. ¶6. Latvia's open, agile and expanding market-oriented economy provides U.S. companies a promising export and investment destination in a newly-enlarged EU. At the same time, it creates the resources Latvia needs to play a more active role in NATO, the European Union and elsewhere. Advancing economic prosperity and security, particularly through expanded opportunities for American business, helps broaden and solidify the U.S.-Latvian partnership. Latvia's total exports to the U.S. in 2005 were worth $147 million (or 2.7 percent of the country's total exports),and imports from the U.S. were valued at $96 million (or 1.1 percent of the total imports into Latvia). The United States is Latvia's 13th largest foreign trade partner. Latvia needs to continue to provide a level playing field, evidenced by efficient commercial dispute resolution, protection of intellectual property, and maintenance of laws and regulations that empower rather than hinder entrepreneurs and foreign investment. Building the rule of law, reducing corruption and improving transparency are key parts of both our economic and political message in Latvia and I hope that you underscore these points in your meetings and remarks. ¶7. In many ways, Latvia is still a land of discovery for American companies. In May of this year, Embassy Riga, working with the Latvian Investment and Development Agency (LIDA) and the American Chamber of Commerce in Latvia, organized the first American pan-Baltic Trade and Investment Conference ever held in the region in Riga. Prior to the conference, I had the opportunity to do a road show in New York and Chicago to speak with various business audiences to develop interest in coming to Latvia for the conference. In the end, over fifty businesspeople representing forty-three companies travelled from the United States to participate in this event. President Vike-Freiberga opened the conference to an audience of approximately 150 businesspeople from the U.S. and the Baltic states. She also held private meetings on the margins with a number of the U.S. businesses that attended. At the conclusion of the mission, GE Money announced that it would expand its presence in Latvia by opening a Nordic Regional Service Center in Riga. In addition, American company Strategic Staffing Solutions announced plans to open an international office in Riga where they plan to employ 60 people. We are currently in discussions with LIDA regarding a follow up trade event for 2007. ¶8. While here, you will visit two American companies that do business in Latvia as well as speak to the American Chamber of Commerce. One of the companies you will visit, GE Money, is a good example of an American company taking advantage of the opportunities provided by Latvia's rapid growth. GE Money already has a loan portfolio of over $110 million and should reach $125 million by the end of 2006. In November 2006, GE Money opened its new Nordic Regional Service Center, which you will visit, which focuses on operations (processing paperwork),finance, and risk analysis. This service center represents an additional investment of about $800,000. It currently employs about 300 people in Latvia and plans to hire more as it expands from the consumer finance area into retail banking. The other U.S. company you will visit is Coca-Cola, which is a contrast to the otherwise pro-business environment here. In August, the Latvian government banned the sales of products contianing certain ingredients from schools, which harmed Coca-Cola's business by suggesting that the ingredients were themselves unhealthy. Coca-Cola had attempted to work with the Latvian government to address their legitimate concerns about childhood obesity and to voluntarily substitute products for sale in the schools as well as help establish after-school and weekend sports programs. Unfortunately, election year politics won the day and the ban went forward. ¶9. Latvia has been attempting to develop itself as a regional banking and finance center. However, in the post-9/11 world the U.S. government expressed serious concern that it was developing this sector without the necessary oversight to prevent it from being used as a conduit for money laundering for organized criminal activity and potentially for financing terrorist activities and organizations. In May 2005, the Department of the Treasury designated two Latvian banks as institutions of "primary money laundering concern" under section 311 of the Patriot Act and to prohibit them from having any dealings with U.S. financial institutions. The Latvian government and regulatory agencies worked very closely with us for a year to enhance their legislative and regulatory framework to address our concerns. In July of this year, Treasury decided to clear one bank and continue the sanctions against the second. While highlighting the robust actions taken by the government, treasury remained concerns about alleged personal links between the ownership of the second bank and organized criminal organizations. ¶10. There is one political theme that I hope you can touch on while you are here and that is the issue of tolerance, inclusion and respect for others. One of the legacies of Soviet rule is a distrust of differences and a tendency to focus on the past rather than looking forward. This manifests itself in a variety of ways. There is still tension between ethnic Latvians and the sizable ethnic Russian population, particularly over language issues. Attacks on individuals of color, including an Embassy family member, attributable to racism are too often chalked up to "hooliganism" or "boys being boys." Attempts by Riga's small gay community to hold a pride march were met by violence and the interior minister said that securing the event would be a bigger security challenge than the NATO Summit. When President Bush was here in May 2005 he said, "Whatever the historical causes, yours is now a multi-ethnic society -- as I have seen on my visit. No wrongs of the past should ever be allowed to divide you, or to slow your remarkable progress. While keeping your Latvian identity and language, you have a responsibility to reach out to all who share the future of Latvia. A welcoming and tolerant spirit will assure the unity and strength of your country. Minorities here have a responsibility as well -- to be citizens who seek the good of the country in which they live." Your assistance in reinforcing this message will help us a lot. ¶11. My Embassy team and I believe that your visit will highlight to our Latvian host the strength of our bilateral relationship, not just for today but as this great partnership builds in the years to come, and will open up discussions on some of the economic and social issues that are so important to Latvia's future success. It is an honor to have you visit this great country that serves as a very strong partner. Best, Cathy. Bailey