PM KALVITIS ON BORDER, RESTITUTION, ECONOMY, AND

C O N F I D E N T I A L SECTION 01 OF 02 RIGA 000148

SIPDIS

NOFORN
SIPDIS

E.O. 12958: DECL: 02/28/2017
TAGS: PGOV ECON PINR PREL SOCI CVIS KIPR LG
SUBJECT: PM KALVITIS ON BORDER, RESTITUTION, ECONOMY, AND
THE NEXT LATVIAN PRESIDENT


Classified By: Ambassador Catherine Todd Bailey. Reason: 1.4 (D)


1. (C/NF) Summary: Latvian PM Kalvitis hopes to sign the
border treaty with Russia March 26 - 27, and plans for speedy
ratification, he told the Ambassador in a February 27
meeting. He suggested that there was a possibility of
movement on restitution of Holocaust-era Jewish communal
property, but called previous linkage with heirless private
property "a strategic mistake." Concerned about an
overheated economy and declining long-term forecasts, he
blamed cheap credit from foreign banks and suggested small
steps to cool things down, but declined to take any action
that would target a middle class enjoying the consumer
benefits of EU membership. Kalvitis also expressed
frustration at what he views as a lack of US recognition for
Latvian efforts on combating IPR violations. Finally, he
told the Ambassador privately that he was not interested in
becoming President and was having no luck recruiting EU
commissioner Piebalgs for the job. End summary.


2. (U) Ambassador Bailey met with Latvian PM Aigars Kalvitis
on February 27. Kalvitis was joined by his chief of staff,
Maris Riekstins, and foreign policy advisor, Peteris Ustubs.
Pol/econ chief accompanied the Ambassador as notetaker.
Kalvitis was fighting off a cold, but in good spirits,
especially at recent polls that continue to show his People's
Party on top. Kalvitis noted that his oldest son would
likely be going to school in the US starting in fall 2007.
The school is renowned for its development of hockey players.
Kalvitis is a huge fan of the sport and his son has shown
some promise as a player.


3. (U) The Ambassador expressed condolences over the recent
deaths of over twenty individuals in a fire at a facility to
care for the mentally challenged. The Prime Minister said
that fires are always a risk in cold weather when unsafe
heating methods are used. In this case, the facility did not
have enough people on duty to assist with the evacuation of
the residents in a timely manner. He suggested that
government would consider whether additional regulations were
needed in this area.

Border treaty
--------------

4. (C) Kalvitis said that the cabinet on March 5 would take
the decision to sign the border treaty with Russia, following
on the authority granted by the parliament to do so. Latvia
and Russia continue to work on the date for signing, but the
PM hoped it could be March 26 - 27 with Prime Ministers
signing and Presidents "in attendance." Kalvitis thought
that Latvia could have the treaty ratified by June. (Note:
That timing would presume no challenge in the Constitutional
Court, but we suspect such a challenge will be filed. End
note.)


5. (C) The Prime Minster thanked the Ambassador for U.S.
support for the treaty, saying that American and German
support and engagement with Moscow had been very helpful in
getting the process to this stage. The Ambassador noted
positively that all elements of the Latvian government are
working together on this, in contrast to the 2005 experience.

Restitution and March 16
--------------

6. (C) Ambassador Bailey expressed our strong disappointment
at the rejection by parliament in November of a bill to
address restitution of Jewish communal property and heirless
private property. Kalvitis said that the government made "a
strategic mistake" by combining both communal and heirless
private property in the same bill. He suggested that the way
forward was to take a "step by step" approach to the communal
properties and said he had discussed this with Speaker Emsis.
Following the meeting, Riekstins told the Ambassador that we
should expect to see some movement soon on at least one of
the 14 communal properties that had been in the bill.


7. (C) Turning to the upcoming March 16 events commemorating
the anti-Soviet activities of the Waffen SS unit formed in
Latvia in WWII, Kalvitis said he expected few problems this
year. There would be "some meetings" but he foresaw no major
demonstrations and no GOL officials would be near these
events. Also, there was less potential for public
disturbances as the Russian Ambassador "has better control
over the Russian groups" that often march in counter-protest
of the March 16 events.

Energy, judicial conferences
--------------

8. (C) Ambassador Bailey briefed on the Embassy's plans for
conferences in the summer on the energy sector and in the
area of the judiciary, the latter being headlined by Justice

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Alito, and thanked the PM for his office's support for both.
After the conference, she noted, the PM might want to
consider the creation of an energy advisor position in his
office to coordinate all GOL actions on this issue given its
importance. The PM welcomed the conferences and said the
energy event was especially well timed. This summer Latvia
will have to decide on energy issues stemming from the
upcoming closure of the Ignalina nuclear facility in
Lithuania, including what to do to generate power between the
closure of the current plant and the opening of the proposed
new facility. These issues would generate significant debate
in Latvia and the conference could help stimulate and inform
that debate.

The economy and IPR
--------------

9. (C) The Ambassador recalled the recent downgrade in
Standard and Poors' long term economic assessment for Latvia
and said that these assessments are influential with
potential investors. The PM jokingly said that the problem
was that there was too much American investment in Latvia,
which was overheating the economy. Turning more serious,
Kalvitis, a former economics minister, demonstrated a mastery
of economic facts and figures about Latvia. He argued that
cheap credit, financed by banks based and earning money
overseas (mainly Scandinavia, but also the US) was driving up
domestic consumption and, as a result, inflation. Private
and corporate debt in Latvia was now roughly 100% of GDP and
rapidly increasing. The Prime Minister said the government
would look to cut the budget deficit, currently under one
percent of GDP, to under half a percent. They would also
impose some new excise taxes on car sales and real estate
transactions and possibly a VAT increase on luxury items, but
he ruled out an income tax increase. He stressed that he
needed to balance managing inflation with the political
reality that Latvians expect that EU membership and other
economic improvements should allow them to buy things they
previously could never imagine owning.


9. (C) PM Kalvitis raised the issue of Latvia's continued
placement on the Special 301 watch list and the lack of a
response to the 2006 out of cycle review. Frustrated, he
explained that Latvia has done good work in the area --
noting in particular cooperation with Microsoft on software
piracy issues -- and spent millions on enforcement, but there
has been no US recognition of progress. The Ambassador
stressed that we were pushing for an answer to the out of
cycle review. Pol/Econ Chief noted the good cooperation from
the GOL in answering any questions or requests for
information we had and praised the recent passage of
amendments to the copyright law, which addresses several
concerns we have expressed in the past.

Visas
--------------

10. (C) Getting ahead of the expected discussion on this
issue, the Ambassador noted that the dialogue on possible
changes to the Visa Waiver Program (VWP) had advanced to the
Hill and that Latvia should be engaging its friends there if
they wanted to influence the process. She also noted that
Latvia could usefully focus on issues such as document
security that would almost certainly be part of any bill that
emerged on this issue. Kalvitis acknowledged that this is a
political issue. While the vast majority of Latvians qualify
for visas, they see the need to visit the Embassy and apply
as a sign that they are not valued as an ally and wonder why
they are treated differently from others in the EU.

Presidential Election
--------------

11. (C/NF) In a one-on-one after the meeting, the PM told
Ambassador Bailey that he had no interest in becoming
President when the parliament selects someone for the job in
June. His preferred choice, he claimed, is EU energy
commissioner Piebalgs, but after two years of discussions,
Piebalgs remains uninterested. Kalvitis also said that while
it is still likely to be someone from the political world, he
has ordered a review of the files of Latvia's Ambassadors
overseas to consider some candidates from that field.
BAILEY